Why a Hawaii Nonprofit Corporation May Not Be Tax-exempt

The term “Hawaii nonprofit” generally refers to a Hawaii corporation formed under the Hawaii Nonprofit Corporations statute. The Hawaii Nonprofit Corporations statute describes formation requirements, membership requirements, meetings, Directors and Officers, Amendment to the Articles of Incorporation and Bylaws, the Sale of Assets and Dissolution.

All Hawaii Nonprofit Directors and Officers must be familiar with the Hawaii Nonprofit Corporations Act, especially the general standards for directors and how to handle conflicts of interest. Thus, Hawaii law determines the nature of the entity to be formed and governs its day-to-day operations. A Hawaii “tax-exempt” organization is one that the Internal Revenue Service (“IRS”) has recognized as meeting certain tax law requirements for exemption from federal income tax. Most tax-exempt organizations are nonprofit corporations or charitable trusts.

The fact that an organization is formed as a nonprofit corporation under state law does not by itself make it tax-exempt under federal law. Therefore, just because an organization is formed as a Hawaii nonprofit corporation does not mean that it is exempt from federal tax or that contributions to it are deductible. This is a common misunderstanding by Hawaii residents.

Sometimes even the Hawaii nonprofit Board of Directors does not understand that donations to it are not deductible.

Contact our law offices today to learn more about Hawaii nonprofit tax exempt issues and other legal matters affecting you.

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