A non-profit corporation is a corporation in which no part of the income is distributable to its members, directors, or officers. To create a non-profit corporation, an entity simply files a Certificate of Formation with the Texas Secretary of State along with the appropriate filing fee (currently $25). A non-profit corporation may be created for any lawful purpose, but must contain certain statutory language if tax-exempt recognition is sought. So remember, not all non-profit corporations are entitled to exemption from state or federal taxes.
The most sought-after non-profit is a public charity, whose goal is to raise money for its specific beneficiary, rather than its owners. Public charities may be recognized as tax-exempt if they meet the requirements of Internal Revenue Code § 501(c)(3).
Section 501(c)(3) of the Internal Revenue Code exempts from taxation, with a few exceptions, organizations created exclusively for the following exempt purposes:
- charitable,
- religious,
- educational,
- scientific,
- literary,
- testing for public safety,
- fostering national or international amateur sports competition, and
- preventing cruelty to children or animals.
“Charitable” is given its generally accepted legal meaning, which includes:
- relief of the poor, the distressed, or the underprivileged;
- advancement of religion;
- advancement of education or science;
- erecting or maintaining public buildings, monuments, or works;
- lessening the burdens of government;
- lessening neighborhood tensions;
- eliminating prejudice and discrimination;
- defending human and civil rights secured by law; and
- combating community deterioration and juvenile delinquency.
There are 29 different types of exempt organizations. Thus, merely because an organization is a non-profit, do not assume that it is tax-exempt, or more specifically, a 501(c)(3) tax-exempt non-profit, or more specifically a public charity.
In order for the IRS to recognize a non-profit organization as tax-exempt, typically within 27 months of formation, the organization must apply for recognition by filing either a form 1023 or 1024 application and the appropriate filing fee (currently $400/850). Once received, the application is assigned to a specialist, who evaluates the application and approves it, asks for minimal / specific additional information, or asks for more development and works with the organization to determine if approval is possible. Check out the IRS’ Charities & Non-Profits website (https://www.irs.gov/Charities-&-Non-Profits) for more details.
This answer is provided in the spirit of public education and not as legal advice. If you require legal advice for a particular situation, you should consult an attorney.
