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 public charity.
B) The Business as a private foundation.
C) The business has federal tax exemptions.
D) The business does not earn profits.
C) The business has federal tax exemptions.
The correct answer is C) The business has federal tax exemptions.
To determine which of the given options must be true when a local business is designated as a 501(c)(3), we need to understand what this designation signifies.
501(c)(3) is a section of the United States Internal Revenue Code that refers to nonprofit organizations. This designation provides certain tax advantages to qualifying organizations.
Option A) The business is a public charity: This is a possible answer. 501(c)(3) organizations can be classified as either public charities or private foundations. Public charities typically receive funding from a diverse range of sources, including the general public, and they actively engage in charitable activities.
Option B) The business is a private foundation: This is a possible answer. 501(c)(3) organizations can also be classified as private foundations. Private foundations are typically funded and controlled by a family or a single individual, and they provide grants to other charitable organizations rather than directly engaging in charitable activities.
Option C) The business has federal tax exemptions: This is true. When a business is designated as a 501(c)(3), it means that it has obtained federal tax-exempt status. This allows the organization to receive tax-deductible donations and other tax benefits.
Option D) The business does not earn profits: This is not necessarily true. While many 501(c)(3) organizations do not distribute profits to shareholders, it does not mean they cannot generate revenue or have surplus funds. Nonprofit organizations can still earn income through various activities, such as providing goods or services, fundraising events, or grants.
Therefore, the correct answers are A) The business is a public charity and C) The business has federal tax exemptions.