Tax exempt status vs. just not making money

So you go to the office supply store to buy paper for your nonprofit organization. You’ve heard that means you don’t have to pay sales tax.  The clerk asks for a copy of your letter from the IRS. And you’re stymied.  Your organization doesn’t make any money so it’s nonprofit, right?

Well, not exactly.

Only the IRS can decide whether your organization falls within their parameters for being a nonprofit organization. And that has to do with a whole lot more than whether or not you make money.

How does this affect your bylaws?

The purpose you list in your bylaws should match those in your Articles of Incorporation (or Charter) that is filed with you state when you incorporate. Assuming you choose to file with the IRS for tax-exempt status, consider carefully what you say in this section.

The IRS uses that information along with a lot more to classify your organization under Section 501(c), or  other Sections, of the Internal Revenue Code.

What people generally think of as nonprofit organizations fall under Section 501(c)(3) of the IRS code. These organizations are “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the preventing cruelty to children or animals.” You can find the exemption requirements for these organizations here.

However, there are other kinds of nonprofits like business leagues, fraternal organizations and veterans associations. For more information on these types of organizations, check the “Requirements for Exemptions” on the IRS website here.

In general, I support the notion that you can draft your bylaws with out a lawyer. BUT this is one of the places that a legal review by an attorney specializing in nonprofit organizations could be helpful in your process.

Good luck all.

Leave a Reply

Your email address will not be published. Required fields are marked *