Terry D. Ott

The first steps to becoming tax-exempt required we know a series of new terms that were interpreted specifically by the IRS. It was important to make sure we knew the specifics of these terms because, at first glance, some of them seem similar enough to be interchangeable. As the IRS doesn’t play in gray areas, we couldn’t either.

Employer Identification Number (EIN)

This one’s pretty straightforward. Any business, from individual startups to large corporations, needs one of these. It’s used to identify the company for tax-purposes. For our tax-exempt company, it would also be given to our donors for their own records when claiming the charity on their taxes. It takes about five minutes to apply for online.

Non-stock Corporation

A non-stock corporation is a corporation which does not issue any shares of stock. What that meant for our organization purposes was that non-stock corporations have no owners.

A nonprofit is, by definition, a non-stock corporation.

Non-profit/Not-for-profit Corporation

There’s no gray area between these two terms; they are synonymous.

Nonprofit corporations cannot distribute dividends or income to their directors, officers, or individual members, except as compensation for services rendered, or upon dissolution of the corporation.

However, this doesn’t mean nonprofits can’t be profitable—they absolutely can be, and often are! The critical difference is all profits must be reinvested into the company’s operations. Individuals cannot financially benefit from profits generated by a nonprofit, only the company itself is permitted to do so.

Nonprofit versus Tax-exempt

All corporations exempt from paying taxes, either at the state or federal level, are non-profit corporations. However, not all nonprofit corporations are tax-exempt.

Tax-exempt Status

Nonprofits, depending on the purpose for which they are organized, may apply to the Internal Revenue Service and/or the state in which they incorporated for exemption from some taxes.

Our target exemption status would shield PublicNTP from having to pay income tax, as well as make all donations to the corporation a legal income tax deduction for donors.

Most charities calling themselves “tax-exempt” or “tax-deductible” are referring to this type of exemption status, meaning the full dollar amount of all donations can legally be deducted from donors’ income tax filings. Both individuals and for-profit corporations can legally donate to a tax-exempt corporation and benefit from the resulting income tax deductions.

Registered Agent

The registered agent is the point of contact for the corporation when being served when the company is being served with legal papers (such as a lawsuit).

There was a bit of learning to do but once we had this vocabulary list under our belt we could move on to the stickier subjects of organizing ourselves both structurally and financially.

Intro

Organizational Structure