You have recently discovered that a local business has been designated 501(c)(3). Which of the following must be true?
A. The business is a private foundation.
B. The business is a public charity.
C. The business does not earn profits.
D. The business has federal tax exemptions.
D. The business has federal tax exemptions.
When a business or organization is designated as a 501(c)(3), it means that it has been recognized by the Internal Revenue Service (IRS) as a tax-exempt, non-profit organization. The classification 501(c)(3) refers to the relevant section of the U.S. Internal Revenue Code that provides the criteria for this tax-exempt status. Organizations that qualify can be public charities, private foundations, or other types of non-profit entities. Therefore, while a 501(c)(3) organization is typically exempt from federal income tax, that fact alone does not necessarily indicate whether it is a public charity or a private foundation (option A and B), nor does it mean the organization cannot earn profits (option C); it just means that any surplus must be reinvested in the organization's mission rather than distributed to private individuals or shareholders.