What Makes an Organization Nonprofit?

Nonprofits status is granted by the IRS.

A nonprofit organization has applied for, and been granted 501(c)(3) status from the Internal Revenue Service. Most organizations incorporate through their particular Department of State before applying to the IRS.

Benefits

The benefits of being granted status as a 501(c)(3) are that property owned by the organization is exempt from taxation and any donors to the organization can deduct their contribution from their income tax. Another benefit is that most grants awards are limited to 501(c)(3) organizations, municipalities, and schools.

Process

Organizations must obtain an Employer Identification Number, which can be done online or by phone. The IRS application, Form 1023, can be downloaded from the IRS website. The form is 30 pages long and will also require attachments, such as narratives and financial statements. The filing fee is $400 if the organization will earn less than $10,000 in a four-year period and $850 if it will earn more. The application can take six months to process.

Misconceptions

Nonprofit status has nothing to do with a zero balance at the end of the fiscal year, or simply performing community activities of a charitable nature. Nonprofit status is simply a legal designation granted by the IRS.