While most people are familiar with a “501(c)(3)” designation, nonprofits can operate in a multitude of ways, and there are a variety of tax statuses for which they can be approved. The popularity and familiarity associated with the “501(c)(3)” status can likely be attributed to the fact that it provides an organization with the prized ability to avoid having to pay income taxes, and the fundraising advantage of soliciting contributions that are tax-deductible to donors.
Once obtained, a nonprofit’s tax-exempt status can be one of its most important assets. This status is not automatic and it is not guaranteed, so it is important to protect it.