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What are the differences between tax-exempt and nonprofit corporations?

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What are the differences between tax-exempt and nonprofit corporations?

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Nonprofit does not mean tax-exempt. A “tax-exempt organization” is a unique entity that is usually a nonprofit organization. However, a nonprofit organization cannot be exempt from Federal and State income or franchise tax until the organization applies for an exemption and the IRS and the state franchise board issues a determination of exemption.

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Non-profit status is a state law concept. Non-profit status may make an organization eligible for certain benefits, such as state sales, property, and income tax exemptions. Organizing as a non-profit organization at the state level does not automatically grant the organization exemption from federal income tax. A federal “tax-exempt organization” is a unique entity that is usually a nonprofit organization. However, a nonprofit organization cannot be exempt from Federal and State income or franchise tax until the organization applies for an exemption and the IRS and the state franchise board issues a determination of exemption.

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