Nonprofit Overview

Terms such as nonprofit, charity, foundation, and tax exempt organization or exempt organization are frequently used interchangeably.  However, a true nonprofit organization is one that by law is created for public benefit rather than private accumulation of wealth.  Such organization may not distribute dividends or assets to private individuals.

But a "nonprofit" organization formed at the state level, such as "nonprofit corporation," is not automatically granted exemption from federal income tax, nor may donors to such nonprofit organization automatically take a tax deduction for contributions thereto.  The organization must apply to be recognized by the Internal Revenue Service as a tax-exempt entity by filing Form 1023.  Most ministries are best suited to seek recognition as a "public charity" as defined by 501(c)(3) of the Internal Revenue Code.  Once that recognition is acquired, that organization is a nonprofit tax exempt entity, freeing them to pursue exemption from various state taxes as well.