Which type of corporations is exempt from paying taxes according to the IRS?

The correct answer is 501(c)(3) organizations because these entities are specifically designed to be tax-exempt under the Internal Revenue Code. This section of the tax code applies to non-profit organizations that are operated for religious, charitable, scientific, or educational purposes. The tax-exempt status allows them to receive donations that are tax-deductible for the donor, and they are not required to pay federal income taxes on money they earn that is used for their exempt purposes.

In contrast, C corporations are standard corporations that pay taxes on their profits at the corporate level, and shareholders also pay taxes on dividends, leading to double taxation. S corporations, while they avoid double taxation by passing income directly to shareholders, are still subject to certain tax obligations. Limited liability companies (LLCs) typically follow the tax structure of their owners unless they elect to be taxed as a corporation but generally do not have the same exemptions or tax benefits as 501(c)(3) organizations. This specialization in non-profit activities and the accompanying tax exemptions make 501(c)(3) organizations unique among the choices provided.