The basic reason of establishing a nonprofit (or not-for-profit) corporation is simple - it helps to obtain funds from government agencies and private foundations. Additional important benefits of forming a nonprofit is a tax-exempt status and personal liability protection.However, nonprofit corporations have their own legal and tax peculiarities, which are advisable to carefully learn before incorporating your business into a nonprofit form. Due to the fact that nonprofit is a business organization that also serves a public purpose, it enjoys special legal treatment. Another major difference between a profit and nonprofit business relates to the distribution of the profits. While in a for-profit business, the owners and shareholders generally receive the profits, with a nonprofit all earned money remains within the organization, so that it can provide some public benefits.

Nonprofit corporations, although can make some profit, cannot be designed primarily for profit-making, and thus they are eligible for some benefits, such as sales, property and income tax exemptions. However, you have to know that organizing as a nonprofit at the state level does not automatically grant you an exemption from federal income tax. To receive federal tax-exempt status, the nonprofit organization must apply with the IRS and meet some legal criteria. The IRS also identifies the different types of nonprofit organizations by the tax code, by which they qualify for exempt status.

Nonprofits are still required to pay employment taxes, but in some states they may be exempt from paying sales tax. In addition, they may be hit with unrelated business income tax, which is regular income that is not substantially related to the charitable purpose.

For more information on IRS tax-exempt status in the USA, you can download IRS Publication 557 (Types of Tax-Exempt Organizations) at Internal Revenue Service.

Additional information on nonprofit corporation legal and tax consequences can be found at:
The Legal and Tax Implications of Nonprofit Corporations
Nonprofit Basics
Nonprofit Organizations