Definition of and Rationales for Tax‐Exempt Organizations

Nearly all federal and state law pertains, directly or indirectly, to tax-exempt organizations; there are few areas of law that have no bearing whatsoever on these entities. A tax-exempt organization is a unique entity; among its features is the fact that it is (with few exceptions) a nonprofit organization. A nonprofit organization is not necessarily a tax-exempt organization. The policy rationale for tax exemption, particularly for charitable organizations, is, as noted, one involving political philosophy rather than tax policy. Aside from considerations of public policy, there exists an inherent tax theory for tax exemption. There are, as noted, rationales for exempting organizations from federal income tax other than the political philosophy rationale and the inherent tax rationale. Tax exemption for nonprofit membership organizations may be viewed as a manifestation of the constitutionally protected right of association accorded the members of these organizations. Controlled Vocabulary Terms charitable organizations; national tax policy; nonprofit organization; tax exemption