TAXATION AND TAX-EXEMPT ENTITIES
The terminology used to describe trade and professional associations often generates much confusion. Consequently, it is useful to clarify two key terms. Associations are generally organized and operated as both nonprofit and tax-exempt entities. Nonprofit status refers to incorporation status under state law; tax-exempt status refers to federal income tax exemption under the Internal Revenue Code.
One who doesn’t know otherwise might reasonably conclude that as nonprofit, tax-exempt entities, associations may not earn profits (realize more income than expenditures) and that they need not pay any taxes. Neither conclusion is correct.