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Tax status is an integral part of a nonprofit incubator's identity. This chapter looks at some of the tax-status issues incubator developers and managers should consider when setting up a program or pursuing partnerships with other organizations.

Making the most of your nonprofit tax status

by Justin Boyd

April 2002

NBIA throws around the term "nonprofit incubator" a lot. But what does it mean to be a nonprofit organization? Exemption from U.S. federal income taxes, to be sure, but it's hardly as simple as that. Tax status is an integral part of a nonprofit incubator's identity, creating opportunities on the one hand, but establishing limitations on the other.

The ramifications of different types of tax status can be quite complicated, even for a stand-alone incubator. They can range from an inability to raise adequate amounts of program funding to restrictions on equity investments or royalty agreements.

But enough about stand-alone programs. How does tax status play out in the innumerable other scenarios that occur? For instance, how does a university-run incubator handle fundraising? What can a government-affiliated program do to receive charitable contributions? How can a nonprofit incubator benefit from arm's-length relationships with for-profit companies?

Following is a look at how several nonprofit business incubation programs whose activities are affected by close ties to other organizations have addressed these and other issues.

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Keywords: 501(c)(3), legal issues, organizational structure, partnerships -- organizational/corporate, tax status

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