A nonprofit organization (“Nonprofit”) is an entity which puts its surplus revenue back into the entity, dedicating those funds to further the goals of the organization, as opposed to paying profits to owners or shareholders. Oftentimes Nonprofits are formed for a public welfare cause or interest or to advocate a certain ideological agenda. By way of example the American Red Cross, Make-a-Wish Foundation, and Greenpeace are all Nonprofits. While charitable organizations make up a large percentage of Nonprofits, there are many types of Nonprofits which serve selective groups or communities and which are not necessarily “charity” groups. For instance, credit unions and certain industrial or business associations can be Nonprofits as well.
The IRS provides for tax exemptions for many Nonprofits. For example, a Nonprofit may seek a federal income tax exemption if it is a corporation organized and operated exclusively for religious, charitable, scientific, public safety, literary or education purposes. Hospitals, schools, and credit counseling organizations are often tax-exempt Nonprofits as well. Some other examples of organizations which may obtain tax exemption include labor groups, business leagues, political groups, social clubs, mutual insurance companies, and agricultural organizations.
The application process to become tax-exempt as a Nonprofit can be complicated and onerous. First, the organization needs to be formed, meaning that the formal requirements for forming a business – such as incorporating that business with the State, creating By-Laws, Articles of Incorporation, and/or Operating Agreements, applying for a Federal Employer Identification Number (“EIN” or “FEIN”) with the IRS, etc. – must be completed. In New Jersey, generally the Nonprofit must also register with the New Jersey Charities Registration Section.