Nonprofits are organizations that serve as a tool for people to work together for a common purpose. Through NPOs, citizens can channel their efforts to advance their just causes, help communities, provide services, attend populations at risk, to mention some of the different ways in which they serve the country. Puerto Rico's nonprofit organizations feed, house, educate, inspire, enlighten, and nurture people of all ages, genders, races, and socioeconomic levels. They foster civic engagement and leadership, drive economic growth and strengthen the fabric of our communities especially in times of emergency. The term “non-profit organization” is a commonly used term without a common understanding. For example, people often use the terms "nonprofit" and "tax-exempt" interchangeably. NPOs are covered under the following sections of the Internal Revenue Code: Section 501(c)(4) (social welfare organizations, homeowners associations, and volunteer fire companies), Section 501(c)(5) ( includes unions), Section 501(c)(6) (includes chambers of commerce), and Section 501(k) (child care organizations). Each of these sections identifies certain conditions that must be met for the organization to be tax-exempt. The only common condition is not to generate profit for any party related to the organization ("no part of the net profits of the organization may inure to the benefit of any shareholder or private individual"); hence the term "non-profit." Section 501(c)(3) of the tax code refers to "public charities" (also known as nonprofit charities) and "private foundations." The tax code considers "churches and religious organizations" (which the IRS defines to include mosques, synagogues, temples, and other houses of worship) to be "public charities.

Entities in Puerto Rico are incorporated before the Department of State by submitting a Certificate of Incorporation. It is also recommended that NPOs register their trade name and brand with the Department of State. Post incorporation and as part of the process of starting an NPO there are several additional steps to follow, including: Merchant Registration Application Board of Directors Certification By-Laws of the Organization Manage the employer Social Security (EIN) before the IRS

There are two types of exemptions to request: the local tax exemption that is requested before the Department of the Treasury and the federal tax exemption that is requested before the IRS. To request a tax exemption, any non-profit organization may submit an application for such purposes before the Tax Incentives Division attached to the Assistant Secretary for Tax Policy of the Puerto Rico Department of the Treasury. As part of the process, you must comply with all the requirements of the Internal Revenue Code in its chapter 10. It is important to mention that before submitting the application, the organization must be registered with the Department of State either as a corporation or as a non-profit organization. Federal Exemption At the federal level, there is a tax exemption regulated by the Internal Revenue Code of the United States. In order for an organization to receive tax exemption under section 501 (c)(3) of the federal Internal Revenue Code (IRS), it must be duly organized and its operations must be directed exclusively to the purposes established in said section. For example: altruistic, educational, religious, etc. Also, NPOs may be eligible to receive tax-deductible contributions in accordance with section 170 of the Code.

It is important to know that an organization that obtains these federal exemptions must meet several requirements, among which are limits on the lobbying or advocacy work that it can do. For example, they cannot devote substantial time and effort to influencing legislation, likewise they cannot participate in any activity or campaign for or against candidates or political parties.

Nonprofits can make a profit and should try to have some level of positive income to build a reserve fund to ensure sustainability. The key difference between non-profit and for-profit organizations is that a non-profit organization cannot distribute its profits to any of the non-profit organizations that can pay reasonable compensation to those who provide services. This prohibition against "private gain" is because tax-exempt nonprofit charities are formed to benefit the public, not private interests. For more information, see this Guide to the IRS and Internal Revenue Code of PR.

Anyone who wants to can donate money to an NPO. Next, some of the different sources or most common ways of raising income that NPOs have: Individual Donations Family Donations Corporate Donations Fundraising Activities Legislative or municipal donation or allocation Donations or municipal allocation Federal proposals or programs Community Foundations

For donor contributions to be tax deductible, the organization to which the person donated must have their state or federal tax exemption. Both the Puerto Rico Department of the Treasury and the federal Internal Revenue Service (IRS) offer an updated list of organizations that enjoy their certifications and exemptions on their websites.