Tax Laws for Nonprofits

The Internal Revenue code states that if an organization meets the requirements of the Revenue Code Section 501, it is tax exempt and is eligible to receive tax deductible donations from contributors. This status is applied for with the Internal Revenue Service. The standard in general is that the organization applying should perform a service that is beneficial to the public at large or a specific special interest group. It should never be to the benefit of just one individual or entity. Organizations are only deemed worthy of such a privilege for the following reasons.

1. It champions the interests of religion. Religion and churches have long been given this privilege because they forward a value that a lot of people in the community care about.
2. It is a charitable enterprise. Charities come in different forms but these are usually created to protect and fund the special interests of underserved and underprivileged groups. Their tax exempt status stems from the fact that they also do a service by helping the government shoulder costs for various social needs.
3. It forwards science as a value. Health and science go hand and hand and due to the prevalence of certain diseases, many nonprofit organizations have been started for the research and development of new drugs and therapies for those afflicted with certain diseases.
4. It supports literacy and education. Education will always be a priority in any society, so having a willing partner in this advocacy makes it more likely that the effort is synergized.
5. It involves sports. Sport activities have often been used to sway the youth into living healthier lifestyles so organizations who champion this are often given the privilege of being tax exempt.
6. It is something that protects the distressed. Organizations that protect the urban poor, homeless, battered wives and even abused animals also get the nod from the government. Such organizations that affirm the government's position on things strengthen the right to the claim.

To ensure that there will be no anomalous organizations that will be wrongly given a nonprofit status, the IRS does a routine organization test. This is a set of criteria that includes strict guidelines on how business should be conducted and how money should be handled.

If the organization fulfills the criteria, the privilege to be tax exempt and be qualified for tax-deductible donations will be granted to the organization. This is a great value to any nonprofit, because it gives them the legitimacy and the fiscal flexibility to not pay taxes. This status can also be used to entice philanthropists into making generous contributions for a good cause. Unregistered groups often are questioned for being not so credible so the chances of getting enough donations are always suspect. Entities who make donations to unregistered organizations might also not get tax exemptions.

If an organization plays fairly and does what it is expected of it, there should be no problem with getting the right accreditation and registration. Once all that is settled, the only thing left is to do the job that a nonprofit has set out to do from the beginning - helping those in need.