Non-profit organization (NPO) registration begins with normal incorporation like any other company. After that, the NPO has to apply separately to be granted tax-exempt status from the IRS and from the state where it is incorporated. A 501(c)(3) tax-exempt charitable organization cannot let its earnings pass to a private shareholder or any other person. If it appears this is happening, the IRS may impose an excise tax on the person and the managers who approved the transaction.
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The steps below cover the five stages of an NPO's life cycle:
The annual filings are obviously more complicated and rigorous for a 501(c)(3) than an ordinary tax paying incorporated business. In this case, the organization has to file both the exempt returns and unrelated business income (if any). This unrelated income is the money that comes in from sources other than the stated purpose of the non-profit.
For example, a non-profit health care facility's income from charitable contributions and the medical care it provides will be tax exempt. However, if it is renting out some of its property to individuals or for-profit firms, the rental earnings will be considered unrelated business income and can be taxed. There are clear guidelines provided to prevent tax-exempt NPOs from lobbying and other forms of political action to influence legislation and elections. If an NPO is found in violation after an audit, the IRS can terminate the organization's tax-exempt status.
Would you like to know more about the laws surrounding Non-Profit Organization (NPO) registration and businesses? Our business lawyers can help. Contact a business law attorney near you today for more information.
Did you know?
Charitable contributions to a 501(c)(3) tax-exempt NPO are tax-deductible.
Other than the tax exemption, non-profit organization (NPO) registration is helpful because it allows the organization to offer tax deductions for contributions.