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Legal Definitions - Definition of Tax-Exempt Organizations

By , About.com Guide

Definition:

A business that does not have to pay Federal taxes is considered to be "tax exempt." All tax-exempt businesses in the United States are also corporations set up as a nonprofit organization.

But nonprofit organizations are not automatically tax-exempt. They must file a special application with the IRS, requesting to be exempt from paying Federal tax. Some states also require a separate filing in order to be tax-exempt from paying state taxes.

Not all nonprofit organizations can become tax-exempt.

Pronunciation: tax-ex·empt or·gan·i·za·tion
Examples:
The Rainbow Children's Society does not pay tax on its donations because it was created as tax-exempt charity.

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