Tax Exemption

Under Internal Revenue Code 4958, the IRS prohibits public charity 501(c)(3) organizations from using their income or assets to benefit private interests (e.g. an individual or a for-profit entity) in monetary or non-monetary ways. There are three categories of legal rules that govern a public charity's private benefit issues: the private benefit doctrine, the private inurement doctrine, and excess benefit transaction rules.

Learn about the importance of an organization's tax-exempt status and the kind of situations that can jeopardize a nonprofit's tax exemption. This resource summarizes issues to be on the look out for and includes links to more information. (National Council of Nonprofits)

The Tax Guide for Churches & Religious Organizations serves as a reference for the federal tax laws as they apply to churches and religious organizations and any income sources that may be subject to taxation. (IRS, 2015)

This publication covers the rules for organizations that are seeking exemption from federal income tax under section 501(a) of the Internal Revenue Code and explains the procedures to follow in order to obtain the appropriate determination letter for an organization's status. (IRS)

This IRS video course explains eligibility, the benefits of exemption, and how to apply for nonprofit tax status, and an interactive Form 1023 to help you fill out the application. (IRS.gov)

This sample statement defines self-dealing transactions and describes the appropriate approval process and why prohibition of private inurement is important for all organizations.

Sample Statement for Self-Dealing Transactions

All 501(c)(3) organizations must file Form 1023 to apply for recognition of exemption from federal income tax. Please see the following IRS online resources:

North Carolina nonprofits are presently exempt from virtually all state and local taxes, except for state sales tax.  It is important to maintain documentation detailing your organizations tax-exempt status, such as its letter of determination from the IRS, at all times.  If your letter of determination has been misplaced or otherwise lost, you may easily 

Under current law, charitable nonprofits in North Carolina pay sales and use tax on their purchases and can apply for semi-annual refunds of the taxes they pay. A system of sales tax exemption would save nonprofits time and reduce administrative burdens. Bipartisan bills in both the House (H.B. 882) and Senate (S.397) would replace the nonprofit sales tax refund system with sales tax exemption for most 501(c)(3) nonprofits.

Annual Electronic Filing Requirement for Small Exempt Organizations — Form 990-N (e-Postcard) - Most small tax-exempt organizations whose annual gross receipts are normally $50,000 or less ($25,000 for tax years ending after Dec. 31, 2007 and before Dec. 31, 2010) are required to electronically submit Form 990-N, also known as the e-Postcard, unless they choose to file a complete Form 990 or Form 990-EZ instead.