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Meaning of Tax Exemption

Although some people associate nonprofit organizations with tax-exempt organizations, certainly not all nonprofit entities are exempted from taxes. Moreover, even though a tax-exempt organization may be free from paying federal income taxes, such an organization may still be liable for other types of taxes. For instance, a tax-exempt organization may be liable for taxes on net investment income as well as income derived from business activities that do not relate to the organization’s exempt functions (known as unrelated business activities, discussed below).

Inside Meaning of Tax Exemption