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 New Mexico, a nonprofit business is typically structured as a nonprofit corporation, which is organized for purposes other than generating profits for its owners. Under New Mexico law, these entities must apply for and obtain nonprofit status by filing articles of incorporation with the New Mexico Public Regulation Commission. Once incorporated, a nonprofit may apply for federal tax-exempt status under Section 501(c)(3) of the Internal Revenue Code if it operates for religious, charitable, educational, scientific, or other qualifying purposes. To maintain this status, the nonprofit must adhere to regulations that restrict political activities and require that earnings are not distributed to private individuals but are reinvested in the organization's mission or for charitable purposes. Additionally, New Mexico offers certain state-level tax exemptions for qualifying nonprofit organizations. It's important for nonprofits to comply with both federal and state regulations, including periodic filings and maintaining proper records. Organizations seeking tax-exempt status under IRC Section 501(c)(7), such as social or recreational clubs, must meet different criteria focused on their membership and activities, and they are subject to distinct regulations regarding their income and operations.