A nonprofit business is a business whose owners do not receive distributions of profits—and any money remaining after payment of the business’s expenses must be retained and used for its own expenses and for charitable purposes. Nonprofit businesses are often charitable foundations and exempt from federal income tax under Internal Revenue Code section 501(c)(3). A tax-exempt 501(c)(3) is a charitable organization that is formed for religious, charitable, educational, literary, artistic, or scientific purposes, or for preventing cruelty to animals and children, fostering amateur sports competition (locally and internationally), or testing for public safety. These charitable organizations are distinct from not-for-profit social or recreational clubs that may be exempt from federal income taxation if they meet the requirements of Internal Revenue Code section 501(c)(7).

In Montana (MT), a nonprofit business is typically organized as a nonprofit corporation under the Montana Nonprofit Corporation Act. These entities are designed to operate without the primary goal of making profits for owners or shareholders. Instead, any surplus funds after expenses are reinvested into the organization's mission or held for future use. Nonprofits in Montana may include charitable organizations, which can apply for federal income tax exemption under Section 501(c)(3) of the Internal Revenue Code if they are formed for religious, charitable, educational, scientific, or other qualifying purposes. To maintain this tax-exempt status, they must adhere to specific regulations, such as avoiding political campaign activity and ensuring that earnings do not benefit private individuals. Nonprofits that are not 501(c)(3) organizations, such as social or recreational clubs, may qualify for tax exemption under other sections of the code, like Section 501(c)(7), provided they meet the criteria set forth for those types of organizations. It's important for entities seeking nonprofit status in Montana to comply with both state statutes and federal law, and they may benefit from consulting with an attorney to navigate the formation and tax-exemption application processes.