Theos-Talk Archives (October 1998 Message tl00005)

There seems to be some fuzziness in the minds of some regarding non-profit
and tax exempt organization.

To clarify, between non-profit and tax exempt organizations, the
classification of non-profit is usually done when the organization
incorporates under the state non profit corporation act. Federal law has
nothing to do with non profit issue. However, tax exempt issue is a
question of whether the organization has to pay income and sales taxes.
Federal law controls and states follow federal decision to classify an
organization as tax exempt. An organization could be non profit but not tax
exempt.

Once tax exempt, usually states exempt the organization from state income
tax, property tax, franchise tax as well as sales tax on items it buys for
its tax exempt use. The other fringe benefit is the lower postage rates tax
exempts pay on bulk mailing. In addition, for tax purposes contributions
only to a tax exempt organization may be deductible. BTW, there are several
categories of tax exempts and only to contributions to some of them are
deductible.

Also, another key factor in granting tax exempt status is what happens when
the organization is dissolved. The residual assets has to be distributed to
the state or other tax exempt organization in a similar category.

Organizations which are incorporated in a foreign country cannot get tax
exempt status in this country. Nor can they receive the assets from a US
tax exempt organization when the latter dissolves. There are some foreign
organizations such as TS, Adyar which are included in the tax exempt list,
which appears to have happened by mistake when old organizations were grand
fathered when Income Tax law was originally enacted. (The proposed bylaws
change will be objected to by IRS as TSA assets in the event of dissolution
can end up in control of an organization which is in a foreign country.)

In understanding tax law, think of Uncle Sam as your financial partner.
When any income is received, Uncle Sam get his share. When you get a tax
break Uncle Sam chips in his share. So when you contribute to a tax exempt
deductible contribution, Uncle Sam is your partner. So Uncle Sam is the
partner who has an investment in the tax exempts, which means your and my
tax money is supporting all tax exempts.

mkr