DEFINITION OF A NONPROFIT ORGANIZATION
A nonprofit organization is an incorporated entity that exists for educational or charitable reasons, and from which its shareholders or trustees do not benefit financially. Profit is not the primary goal of nonprofit organizations and most have been granted exemption from federal taxes by the IRS. If a nonprofit is awarded 501(c)(3) status, then donations to that organization are tax deductible to the extent allowed by law. This becomes quite desirable in terms of fundraising abilities.
----------------------------A note on Exemption Requirements from the IRS
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.
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