|Define Your Purpose|
You may be able to name many various, beneficial purposes your organization serves. But as far as the IRS is concerned, you only have one purpose, and it has to be one of the following.
In order to receive tax exempt status, your organization must fall into one of these categories, or purposes.
Since you are required to list a purpose when you file articles of incorporation, it is important to be descriptive in your application.
A number of factors could help determine your category. As with all things legal and tax-related, consulting a professional is recommended.
To qualify for federal tax-exempt status under 501(c)(3) of the federal tax code, the nonprofit organization must be organized and operate for one of the following exempt purposes: religious, charitable, scientific, literary, or educational purposes, testing for public safety, the prevention of cruelty to children or animals, or the promotion of national or international amateur sports competition. Nonprofit corporations may also be formed for other purposes pursuant to different sections of the IRS code. To qualify for federal tax-exempt status as a nonprofit under a different section of the code, your organization must comply with the requirements of that federal tax code section.
The religious category refers to general types of religious organizations and more formal institutionalized churches.
Charitable purpose is defined in section 501(c)(3) as providing services beneficial to the public interest.
Scientific research that is carried on in the public interest qualifies for tax-exempt status; however, research incidental to commercial or industrial operations does not qualify.
The literary purpose includes writing, publishing and distribution of books which are directed toward promoting the public interest rather than engaging in commercial book writing and selling.
The educational purpose is a broad purpose that allows instruction for both self-development and the benefit of the community.
The purpose must be listed in the articles of incorporation; therefore, it is very important that the purpose of the organization be well described in the articles of incorporation. Additionally, certain states require approvals from state departments prior to approving the formation of a nonprofit organization. One example of this is New York. New York often requires one or several departmental approvals based on the business purpose of the prospective nonprofit organization. Please keep in mind that there may be additional time required to obtain these approvals, and additional fees charged. This varies by state.
For a specific answer to whether or not your company's purpose is acceptable to be classified as a nonprofit organization, contact an attorney or accountant.