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 Oregon, a nonprofit business is typically structured as a non-profit corporation, which is governed by the Oregon Nonprofit Corporations 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 activities that align with its charitable purposes. Nonprofits in Oregon may apply for federal income tax exemption under Section 501(c)(3) of the Internal Revenue Code if they are organized and operated exclusively for religious, charitable, educational, scientific, or other purposes outlined in the statute. This exemption allows them to avoid paying federal income taxes on the money they receive, provided they comply with the regulations governing such organizations, including limitations on political activities and requirements to serve the public interest. Additionally, Oregon offers certain state-level tax exemptions for qualifying nonprofit organizations. It's important for these entities to adhere to both federal and state regulations to maintain their tax-exempt status, and they may benefit from consulting with an attorney to ensure compliance.