Now that you understand that this information is intended for nonprofit corporations organized for religious, charitable, scientific, literary, and/or educational purposes that want to qualify for a tax exemption under Section 501(c)(3) of the Internal Revenue Code (and hopefully your nonprofit is among them), let's look at the benefits you'll enjoy as a 501(c)(3) tax-exempt nonprofit corporation. The relative importance of each of the following benefits will vary from group to group, but at least one of them should be very significant for your organization.
Nonprofit corporations are eligible for state and federal exemptions from payment of corporate income taxes, as well as other tax exemptions and benefits.
Receiving Public and Private Donations
One of the primary reasons for becoming a 501(c) (3) nonprofit corporation is that it increases your ability to attract and receive public and private grant funds and donations
Protection From Personal Liability
Protecting the members of your group from personal liability is one of the main reasons for forming a corporation (either profit or nonprofit). Once you're incorporated, directors or trustees, officers, employees, and members of a corporation usually won't be personally liable for corporate debts or liabilities, including unpaid organizational debts and unsatisfied lawsuit judgments against the organization, as they normally would be if they conducted their affairs without incorporating. Creditors can go after only corporate assets to satisfy liabilities incurred by the corporation—not the personal assets (cars, homes, or bank accounts) of the people who manage, work for, or volunteer to help the nonprofit corporation.
Separate and Perpetual Legal Existence
A corporation is a legal entity that is separate from the people who work for it. Again, one benefit of this separate existence is that corporate liabilities are not the liabilities of the managers, officers, or members of the corporation (known as the corporate characteristic of limited liability). Another benefit is that this corporate legal person is, in a sense, immortal; the nonprofit corporation continues to exist as a legal entity despite changes in management or other corporate personnel caused by the resignation, removal, or death of the people associated with it. It may, of course, be dissolved or drastically affected by the loss of key people, but its inherent perpetual existence makes it more likely that the group's activities will continue, an attractive feature to the private or public donor who prefers funding activities that are organized to operate over the long term.
Another benefit of the nonprofit corporation is that its principals can also be employees and, therefore, eligible for employee fringe benefits not generally available to the workers in unincorporated organizations. These benefits include group term life insurance, reimbursement of medical expenses, and coverage by a qualified corporate employee pension or retirement income plan.
Additional advantages are available to nonprofits that engage in particular types of activities or operations. These benefits can be helpful, and in some cases are critical, to the success of a nonprofit organization. Here are examples of some of the benefits available to certain types of tax-exempt nonprofits:
- Your nonprofit may qualify for exemptions from county real and personal property taxes.
- 501(c)(3) organizations receive lower postal rates on third-class bulk mailings.
- Many publications offer cheaper classified advertising rates to nonprofit organizations.
- Nonprofits are the exclusive beneficiaries of free radio and television public service announcements (PSAs) provided by local media outlets.
- Many stores offer lower membership rates to nonprofit employees.
- Nonprofit employees are often eligible to participate in job training, student intern, work-study, and other federal, state, and local employment incentive programs (where salaries are paid substantially out of federal and state funds).
- 501(c)(3) performing arts groups are qualified to participate in the performance programs sponsored by federally supported colleges and universities.
- Certain 501(c)(3) educational organizations are eligible for a tax refund for gasoline expenses (for example, in running school buses).