Question

Describe how and why states regulate NFPs, and describe: Not-for-profit incorporation laws & Registration, licenses, and tax-exemption.

Answer 1

State governments regulate NFPs because states grant them legal licence to exist and perform its duties. States Regulate NFPs in several ways such as:-

1) Annual Reporting

2) Tax compliances

3) Monthly filing

4) Overlooking the activities undertaken by NFPs

NFP organisations are formed by filing their articles of incorporation in the state in which they expect to operate.

Once they are filed, NFP can get legal status to carry on its activities. NFP must operate in religious, education, scientific settings.

A nonprofit organization may be eligible for exemption from federal income tax. For that NFP has to file various forms with the IRS. These forms are:-

1) Form 1023 - Charitable, Religious and Educational Organizations (501(c)(3))

2) Form 1024 - Social Welfare Organizations (501(c)(4) organizations)

An NFP has to file form 990 series returns annually which shows the activities performed by the NFP throughout the year.