In most cases a nonprofit that’s been formed under state law will not be automatically exempt from federal income taxes, and will need to go through the process of applying for tax exemption. In order to be eligible for tax exemption under Section 501c3, an entity needs to be organized and operated exclusively for one or more of these purposes:

Nonprofit 101: Forming a Nonprofit & Applying for Tax Exemption with Erin Bradrick
Erin Bradrick is Senior Counsel at NEO Law Group and a contributor to the Nonprofit Law Blog. Erin’s practice focuses on corporate, governance, charitable trust, and tax matters solely for nonprofit and exempt organizations.

In this CLE class clip, Erin discusses Applying for Exemption 501 c 3.

• Charitable
• Religious
• Educational
• Scientific
• Testing for Public Safety
• Literary
• Foster National, or International Amateur Sports Competition
• Prevention of Cruelty to Children or Animals

There are two tests and organization must pass in order to be tax exempt in Section 501c3. First, and organizational test, where they show they are organized elusively for one or more exempt purposes as set forth in its governing documents. Second, the operational test, where an organization must operate primarily for one or more exempt purposes, and only an insubstantial part of an organization’s activities may be devoted to non-exempt purposes.