Tax-Exempt Organization

A non-profit corporation is a special type of corporation that has been organized to meet specific tax-exempt purposes. To qualify for non-profit status, your corporation must be formed to benefit (1) the public, (2) a specific group of individuals or (3) the membership of the non-profit.

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Exemption Requirements - Section 501(c)(3) Organizations

To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.

The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.

Section 501(c)(3) organizations are restricted in how much political and legislative (lobbying) activities they may conduct.

How do you form a nonprofit corporation?

Non-profit corporations follow state laws that are very different from those of standard corporations—but the business formation process is very similar. Non-profit Articles of Incorporation must be filed with the state and applicable state filing fees paid. In order for your nonprofit to become tax-exempt, Form 1023 must be filed with and approved by the IRS. Some states also require a state-level tax-exempt status filing.

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