Within the past month, I began a series of articles about forming a nonprofit organization under New Jersey law.   Among the issues I addressed were some advantages and disadvantages of incorporating as a nonprofit as well as the minimum information needed for your attorney to draft and file your Certificate of Incorporation, including a $75 filing fee. Finally, there is the requirement to adopt Bylaws that address how the Board will operate.    

Now that your organization is incorporated and has adopted its bylaws, can you now claim the right to get donations that are tax exempt for the person making the donation? No! When an individual or group of individuals forms a nonprofit, it does so under state law. 

As noted in an earlier article, the organization must file and receive back a filed Certificate of Incorporation, which means that the organization is officially recognized as a non-profit organization in the state of New Jersey. While a non-profit organization may be eligible for certain benefits, such as state sales, property, and income tax exemptions, these benefits do not apply automatically. 

Although most federal tax-exempt organizations are non-profit organizations, organizing as a non-profit organization at the state level does not automatically grant the organization exemption from federal income tax. To be recognized as exempt for federal income tax purposes, most organizations are re­quired to apply for recognition of exemption with only limited exceptions to this requirement.

The IRS will recognize an organization as tax-exempt if it meets the requirements of the Internal Revenue Code. For example, a corporation must be organized exclusively for charitable and educational purposes under section 501(c)(3) of the Internal Revenue Code or a corresponding section of any future federal tax code. Organizations applying for tax-exempt status must submit two applications: First, they have to apply for an Employer Identification Number (EIN), if they don’t already have one, and second, they must file an application for recognition of exemption. Only after the application has been accepted as being in compliance with the code will the organization get the desired IRS determination letter for tax-exempt status. 

One of the main reasons why a nonprofit organization wants to also obtain IRS recognition as tax exempt is to help with fundraising.

If someone donates money to a nonprofit that has obtained the IRS recognition, that person can count that donation as a charitable deduction on their personal income tax return.  

If, however, the nonprofit has not obtained the IRS recognition as being tax-exempt, then the person making the monetary donation cannot count it as a charitable donation deduction on their personal income tax return. 

Stay tuned for a future article on how an organization obtains tax exempt status.

In the meantime, remember: Protect yourself and your family. Know your responsibilities as well as your rights and how to assert them when you need to.

Legal Notes is based on general law and is not intended as individualized advice. If you have a legal problem, contact a licensed attorney to discuss how the law affects your particular legal problem and facts.

South Jersey Legal Services offers free legal services to income-eligible residents and senior citizens in the seven southern counties: Cumberland, Salem, Gloucester, Camden, Burlington, Atlantic & Cape May. For assistance, call the centralized intake unit at 1-800-496-4570.