Nonprofit Corporate Tax Information

General Information on Tax Exemption

The terms “nonprofit” and “tax-exempt” are not synonymous. Not all nonprofit organizations are tax-exempt. The fact that an organization may be organized and operated as a nonprofit under applicable state law does not establish tax exemption for the organization. To qualify for tax exemption, an organization must meet specific federal and state guidelines. 

Federal income tax exemption for organizations is provided in Section 501 of the Internal Revenue Code (“Code”). To qualify for federal income tax exemption under this section of the Code, the organization must be a corporation, community chest, fund, or foundation. A trust is a fund or foundation and will qualify. However, an individual or a partnership will not qualify. The organization or corporation must be organized for one or more of the purposes designated in the Code. Code § 501(c) lists several types of tax-exempt organizations and the purposes under which the organizations must be organized in order to qualify for federal income tax exemption. 

Code § 501(c)(3) lists the most common tax-exempt organizations. These organizations may be established for the following purposes: religious, educational, charitable, scientific, literary, testing for public safety, fostering certain national or international amateur sports competitions, or prevention of cruelty to children or animals. For a nonprofit corporation to qualify for a Code § 501(c)(3) exemption status, it must include and abide by the requisite statement of purpose in its articles of incorporation. Also, the corporation must submit to the Internal Revenue Service, (“IRS”), Form 1023, "Application for Recognition of Exemption." Contributions made to organizations that have been approved for tax exemption by the IRS under Code § 501(c)(3) are deductible by the donor as “charitable contributions” as defined in Code Section 170(c).

The following is a list of publications available from the IRS regarding federal income tax exemption that may be obtained by either calling or writing the IRS. 

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For nonprofit corporations organized under Chapter 55A of the North Carolina General Statutes, there is no formal application or fee required to obtain a state franchise and income tax exemption. The process begins when the organization incorporates with the North Carolina Secretary of State. After a nonprofit corporation is registered with the Secretary of State, the corporation can determine whether or not it should seek a letter of exemption from the Department. A corporation that wishes to obtain a letter of exemption must provide a copy of its Articles of Incorporation, Bylaws, and Federal Determination Letter (if applicable) to the Department. The Department will evaluate the documents and issue a determination letter advising the corporation of its tax status and any filing requirements. Under North Carolina law, organizations that are exempt from federal income tax under the Code are exempt from the corporate income tax imposed under G.S. 105-130.3 on income that is not unrelated business income as defined in Code Section 512. In addition, except as otherwise provided by North Carolina law, an organization that is qualified for exemption from federal income tax under the Code is also exempt from the franchise taxes imposed under Article 3 of the North Carolina Revenue Law. (See N.C. Gen. Stat. § 105-125)

The Department does not issue "exempt numbers" for franchise and corporate income tax purposes, but it does issue letters of tax exemption. The nonprofit corporation should use its federal identification number to file North Carolina franchise and corporate income tax returns. Important. Except as provided by North Carolina tax law, a nonprofit corporation that does not request a tax-exempt letter from the Department is considered subject to franchise and corporate income tax. The nonprofit corporation must make available any records the Department considers necessary to determine and verify whether or not the corporation is subject to tax.

Entities organized outside North Carolina and unincorporated entities that desire a tax-status ruling should make a request by letter accompanied by a copy of the Bylaws, Constitution, or other organizational documents. To qualify for tax-exempt status, the organization’s Constitution, Bylaws, or Articles of Incorporation must include the following provisions: 

  • Entity is organized exclusively for one or more of the purposes specified in Section 501(c) of the Code of 1986 or any successor section, including for such purposes, the making of distributions to organizations that qualify as exempt organizations under Section 501(c) of the Code of 1986.
  • No part of the net earnings of the organization shall inure to the benefit of its members, directors, officers, or other persons except that the organization shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the exempt purposes of the organization.
  • In the event of dissolution, the residual assets of the organization will be turned over to one or more organizations with similar purposes which are exempt as organizations described in Section 501(c) of the Code of 1986.

The IRS requires tax-exempt organizations with gross receipts greater than $25,000 to file an information only return (Federal Form 990) even if the organization has no taxable unrelated business income. A copy of Form 990 is not required to be filed with the Department. An organization's letter of tax exemption will state whether or not the nonprofit corporation is required to file franchise and corporate income tax returns with the Department. Any questions concerning the filing of returns should be referred to the Nonprofit Corporate Tax section of the Corporate Tax Division.

Unrelated Income Tax Filed on CD-405 [G.S. 105-130.11(b), (c)]

Tax-exempt organizations are required to report unrelated business income under N.C. Gen. Stat. § 105-130.11(b) or (c). Tax-exempt organizations with unrelated business income must complete the income tax schedules of the North Carolina Franchise and Corporate Income Tax Return (Form CD-405) and file the return by the 15th day of the fifth month after its year end and pay tax at the statutory corporate rate. Tax-exempt organizations required to file a return to report unrelated business income are not subject to the franchise tax imposed under N.C. Gen. Stat. § 105-122 and should not complete the franchise tax schedules on Form CD-405. For more specific information on what constitutes unrelated business income for a tax-exempt organization, refer to the Internal Revenue Service Publication 598, Tax on Unrelated Business Income of Exempt Organizations.

Frequently Asked Questions

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Send to the Department a copy of your Articles of Incorporation and Bylaws (if incorporated) or your Bylaws, Constitution, or other organizational documents (if not incorporated) and a copy of your Federal Determination Letter (if obtained). These documents should be sent to: 

North Carolina Department of Revenue
Corporate Tax Division
Nonprofit Corporate Tax
Post Office Box 871
Raleigh, NC 27602-0871

The Department reviews the purpose of the organization (how it is operating and what it is doing), where the money is coming from or how it is being used (net earnings provision), and how money will be distributed when the organization dissolves (dissolution provision).

No. The Department does not issue tax-exempt numbers. Upon receipt and review of the nonprofit organization's Articles of Incorporation and Bylaws, the Department will issue a letter indicating the organization's tax status in North Carolina ("tax-exempt letter").

Yes. If an organization received a tax-exempt letter from the Department, a copy of the tax-exempt letter can be obtained from the Department. The organization must submit a written request for a copy of the letter to: 

North Carolina Department of Revenue
Corporate Tax Division
Nonprofit Corporate Tax
Post Office Box 871 
Raleigh, NC 27602-0871

Generally, a nonprofit corporation is suspended by the Department for one of the following reasons: 

  • Failure to file a copy of Articles of Incorporation and Bylaws
  • Failure to file additional requested information
  • Failure to file a copy of the Federal Determination Letter
  • Failure to file a tax return to report unrelated income

If a nonprofit corporation has been suspended for one of the reasons listed above, the corporation must provide the information requested and pay a $25.00 reinstatement fee to have its suspension lifted. If the corporation does not qualify for tax exempt status, all delinquent franchise and corporate income tax returns must be filed and any tax, penalties, and interest must be paid before the reinstatement can occur.

For a nonprofit organization to conduct bingo games, it must apply for a license through the Department of Public Safety. In order to obtain a license, the organization must be tax-exempt and submit a copy of its tax-exempt letter from the IRS and from the North Carolina Department of Revenue. There is no formal registration required for a nonprofit organization to conduct a raffle. However, the nonprofit organization must have obtained a tax-exempt letter from the North Carolina Department of Revenue and must display it where the raffle is conducted.

No. However, North Carolina follows the IRC and if you are tax-exempt for federal income tax purposes, your organization would qualify for exemption with North Carolina. You can apply for the federal tax exemption and North Carolina tax exemption simultaneously.

The Department would consider the organization's North Carolina tax exemption revoked and require them to file tax returns as if the organization had been a taxable entity from the date of incorporation.

Under G.S. 105-125(a)(8) and G.S. 105-130.11(a)(11), the exemption for homeowners’ or property owners’ associations is restricted to residential property only. Associations made up of commercial property (ex. office parks or shopping centers) do not qualify for exemption.

No. Except as otherwise provided by North Carolina Revenue Law, an organization that is qualified for exemption from federal income tax under the Code is exempt from the franchise taxes imposed under Article 3 of the North Carolina Revenue Law. [G.S. 105- 125(a)(9)].

Yes. A political organization is taxable at the corporate rate on net income not related to its exempt function pursuant to Section 527(c) of the Code. Therefore, a political organization which is required to file and report taxable income with the IRS on Form 1120-POL, is required to file a North Carolina Franchise and Corporate Income Tax Return (Form CD-405) and submit the income tax due on its taxable income. Tax returns for political organizations are due by the 15th day of the fourth month following the close of the income year.

No. The contribution must be made to a qualified organization determined to be tax exempt under Code § 501(c)(3) to be tax deductible. North Carolina Revenue Law provides that only charitable contributions as defined in Section 170(c) of the Code are allowed as a deduction. To become a qualified organization, most organizations, other than churches and governments, must apply to the Internal Revenue Service.

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