A Brief Note On Non Profit Tax Compliance

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Non-Profit Tax Compliance
Unlike for-profit businesses, the focus of a nonprofit is not on gaining profits for shareholders and owners, but to fulfil a charitable mission for the benefit of the public. Because of this mission focus, the IRS has recognized these organizations as exempt from the federal income tax that is placed on for-profit businesses and individuals. This recognition is not automatic and is not guaranteed. Nonprofit organization must still follow the rules and regulations set forth by the IRS and the U.S. Government regarding tax compliance. If these rules are not followed, a nonprofit organization could lose their tax exempt status.
A charitable focus does not mean that money is not involved. In fact, nonprofit
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501(c)(3) Organizations
Charitable organizations are formed for many different purposes, but in order to be eligible for tax exempt status, a nonprofit organization must meet the description of one of the forms described in The Internal Revenue Code of 1986 §501(c). According to I.R.C. §501(c) there are 29 different sections through which a nonprofit organization can be eligible for income tax exemption. The most commonly used exemption is described in I.R.C. §501(c)(3) which accounts for 1.11 million of the total 1.72 million organizations that are exempt from tax (Fishman, 2015). Because these organizations are governed by §501(c)(3) of the tax code, they are referred to as 501(c)(3) organizations (Fishman, 2015).
501(c)(3) qualifications
Over half of all tax-exempt nonprofit organizations are considered 501(c)(3) organizations (McKeever, 2015). I.R.C. §501(c)(3) provides a thorough description this tax exempt organizational form:
Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition …or for the prevention of cruelty to children or animals… (I.R.C. §501(c)(3)).
This form is widely used and encapsulates what many people think of when they think of a nonprofit, including charities, foundations, hospitals, and qualifying
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