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Definition of Non-Profit

A non-profit corporation, also referred to as a 501(c)(3) corporation, is one recognized by the IRS as tax-exempt and organized for a public or charitable purpose. A non-profit corporation must have at least one director or trustee and, upon dissolution, must either distribute its assets to the state or federal government or to another non-profit entry.

Most corporations that are formed ‘for profit’ are allowed to engage in “any lawful business activity.” Non-profit corporations are required to state a specific purpose that benefits either the public at large, a segment of the community, or a particular membership-based group.

Contributions to 501(c)(3) corporations are exempt from federal or state taxation. Many wealthy individuals make substantial contributions in their estate plans for qualified non-profit corporations.

These estate plan contributions are actively pursued by many non-profits as part of their campaign for public support.

For tax purposes, the non-profit corporation must be formed for religious, charitable, scientific, educational or literary purposes in order to claim the 501(c)(3) tax-exempt status.

501(c)(3) Eligibility Rules

    • Organized and operated for charitable, educational, religious, literary or scientific purposes.

    • Gains not distributed to directors, officers or members.

    • Any assets remaining upon dissolution must be distributed to another qualified tax-exempt entity or group.

    • No participation in political campaigns for or against candidates for public office.

    • Not substantially engaged in grassroots legislative or political activities, except as permitted under federal tax rules.

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