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What is Federal Non-Profit Status?

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  • Written By: Laura M. Sands
  • Edited By: Heather Bailey
  • Last Modified Date: 07 November 2016
  • Copyright Protected:
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    Conjecture Corporation
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Federal non-profit status is a classification assigned to organizations that do not operate for the purpose of private interest. Many of these organizations operate as charitable organizations or organizations that exist solely for the public’s interest. Examples of such organizations may include schools, churches, private foundations and charities. The government often helps fund these organizations with federal non-profit grant money. Non-profit organizations also receive certain state and federal non-profit tax exemptions due to their legal status.

A non-profit business may be filed as a corporation, but it may also be formed as a trust. If it is formed as a corporation, a non-profit is filed in much the same way as a for-profit company. During the incorporation process, however, a formal request is made for the company to be recognized as a federal non-profit.

In order to become a federal non-profit organization, a business must meet certain guidelines. Aside from not operating for private interest, a non-profit organization must also agree that it will not operate with the foremost intent of rewarding anyone responsible for the organization’s operation. Specifically, profits derived from the organization’s activities are not distributed to board members and other members of the organization. This does not mean that employees working for a non-profit business cannot be paid a fair wage, only that the profit of employees, members or board members will not be the organization’s primary focus.

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A non-profit organization must also abide by other regulations set forth by the federal government in order to maintain non-profit status. For instance, an organization funded with government non-profit money may not discriminate, in any way, against a person based on his or her race, ethnic origin, gender or political leanings. Most companies and organizations operating under non-profit status are also required to avail their organizational records for review by the Internal Revenue Service, as well as to the public, in general. This is to assure that the organization’s non-profit status is consistently warranted and that expectations, policies and guidelines are being adhered to. Non-profit organizations are also governed by an internal board of directors typically comprised of individuals who share the organization’s philosophy and mission statement, as well as individuals in the community who are representative of the population in which the organization seeks to serve.

Besides income tax exemptions and federal non-profit grant money, organizations with this status also receive other benefits. These benefits include lower postage rates and exemption from paying property taxes. Individuals who make donations or contributions to a federal non-profit organization also receive the benefit of deducting the value of such contributions from their state and federal income tax returns.

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