The tax-exempt status of non-profit organizations makes possible a number of opportunities, but at the same time, can complicate some financial relationships. NPO founders, for example, often use their own assets and talents to contribute to their organization’s start-up process. The donation of start-up costs or investments in trust can be a considerable deduction for the contributor. Because the fair market value of such gifts may be quite significant, and because of the wait time in establishing an NPO, these deductions may have to be put off until the IRS officially recognizes the 501(c)(3) status of a particular organization. Some states, however, have a process in place whereby as soon as the individual state recognizes the tax-exempt status of a nonprofit, deductions are considered legal. These rules vary from state to state.
Once the arduous process of setting up a nonprofit has been finished, and as long as the necessary annual paperwork is dually completed, there is minimal oversight from the government. Audits of organizations in the nonprofit sector occur regularly, though only a small percentage of NPOs are investigated. Typically, law-abiding NPO organizations are rarely effected, and unless a separate business is using the business model of the NPO in question for illicit purposes, nonprofit establishments are relatively free of government oversight.
Nonprofit organizations are well-known for their tax-exempt status. Operating within the law and staying true to the individual NPO’s stated mission is essential to maintaining a 501(c)(3) standing. For law-abiding nonprofits, the possible savings on taxes and donated goods and services can and often do add up to the advantage any NPO needs to thrive.
