What is a 501c3? The term is used to define a charitable organization, named after Internal Revenue Code Section 501(c)(3), which gives such organizations tax-exempt status. (Financial Dictionary)
Wikipedia defines a 501c3 organization as:
A 501(c) organization, or simply a 501(c), is a tax-exempt nonprofit organization in the United States. Section 501(c) of the United States Internal Revenue Code provides that 29 types of nonprofit organizations are exempt from some federal income taxes. Sections 503 through 505 set out the requirements for attaining such exemptions. Many states refer to Section 501(c) for definitions of organizations exempt from state taxation as well. 501(c) organizations can receive unlimited contributions from individuals, corporations, and unions.
So should every organization with a mission focused on social good work towards becoming a 501c3? Frances Kunreuther points out in To 501(c)(3) or Not to 501(c)(3): Is That the Question? that:
Not every group has to become a 501(c)(3). At the same time, not every 501(c)(3) has to look and act the same. The passion to achieve the mission does not have to end with incorporation, but the organization may need to create new structures for channeling the fervor that initially brought people together…
Organizations that incorporate must consider how funding can enhance or limit the mission and achievement of their vision. Funding solves some problems and creates others, so a key challenge is for incorporated organizations to mitigate the negative effects of funding and remain conscious of choosing work based on connection to mission, not availability of resources.
A majority of 501c3s are nonprofits, but corporations, trusts, LLCs, and unincorporated associations can also seek 501c3 determination from the IRS. An organization with 501 c 3 status does not pay income taxes related to its nonprofit mission and purposes, is able to receive tax-deductible contributions, and is eligible for foundation grants. By law 501 c 3 organizations are required to not participate in any political or lobbying activity, although under the Trump administration these laws could change.