Which statement about nonprofit organizations and tax status is true?

• A. False
• B. True
• C. Not for non-profits
• D. Only foreign nonprofits

Answer: (B)

Nonprofit organizations can qualify for tax-exempt status under tax laws if they are organized and operated for public-benefit purposes such as charitable, educational, or religious activities, and they follow the rules about earnings and distribution of profits. When they obtain this status, their income is typically exempt from federal income tax, and donations to the nonprofit may be tax-deductible for donors. To keep the exemption, the organization must file the required reports and comply with governance and activity rules; some income not directly tied to the exempt purpose may be taxed as unrelated business income. The idea that only foreign nonprofits can have this status is incorrect—domestic nonprofits can also qualify.