The term "501(c)3" refers to the most common type of nonprofit organization recognized by the IRS. According to About.com, this category embraces such diverse entities as old-age homes, charity hospitals, schools, churches and the Red Cross, among others. These organizations are exempt from taxation, and donations to them are generally tax deductible.
Groups organized under the 501(c)3 designation operate in the public interest and promote charitable, religious, educational and literary objectives. Sometimes they organize sporting events or testing for public safety. Community groups, such as boys' and girls' clubs, are typically registered as 501(c)3s, as reported by About.com.
The IRS has strict rules governing the organizing and subsequent conduct of 501(c)3 groups. According to its official information page, the IRS expects 501(c)3 entities to be organized and operated exclusively for recognized exempt purposes. Such groups may raise funds and receive grants, but excess net funds must not be allowed to inure to the advantage of any private interest or individual. If an individual having substantial influence over a 501(c)3 entity engages in an "excess-benefit transaction" by, for example, leasing the charity's land for private purposes at a steep discount, the IRS might impose an excise tax to ensure the integrity of institution.