• The income of an NPO must not benefit an individual.coins russian federation image by S from Fotolia.com
  
  The Internal Revenue Service (IRS) established Section 501(c)(3) of the U.S. Code for nonprofit entities. Nonprofit entities are those whose primary purpose is not to make money, per se. Instead, they exist for some other beneficial purpose. Nonprofit enterprises like religious organizations, charities, and veteran's groups can all qualify for Section 501(c)(3) status by applying to the IRS. After approval, all nonprofit activities must contribute to the stated beneficial purpose.
  
  

Nonprofit organizations (NPOs)

• Section 501(c)(3) groups are commonly referred to as charitable organizations. A charitable organization must be an incorporated fund or foundation, or an unincorporated association. A charitable trust qualifies as a fund or foundation, but not if the trust's beneficiary is an individual. One example of a charitable organization is Barco's Nightingales, a nursing foundation that supports care of children.
  
  

Operation requirements

• An NPO must engage primarily in the nonprofit activities that accomplish the exempt purposes articulated in section 501(c)(3) of the tax code. An organization can lose tax-exempt status if more than "an insubstantial part of its activities" benefits anything other than the exempt purpose.
  
  

Exempt purposes

• The exempt purposes within section 501(c)(3) are very broad: charitable, religious, educational, scientific, literary, testing for public safety, promoting national/international amateur sports competition, and preventing cruelty to children or animals. Relief to the poor, distressed, or underprivileged; advancement of religion, education or science; building or maintaining public buildings or works; lessening neighborhood tensions, combating community deterioration and juvenile delinquency; eliminating prejudice and discrimination; and defending human and civil rights are all approved. The American Red Cross is a good example of an NPO with an exempt purpose.
  
  

Loss of tax-exempt status

• Most tax-exempt organizations, except churches, must file a yearly return with the IRS. Tax-exempt status is automatically lost If an exempt entity does not file as required for three years. Nonprofits must file with IRS by May 17 if they use the calendar year as their fiscal year. There are different versions of Form 990 that must be filed depending on the yearly revenues of the nonprofit enterprise.