The Not-For-Profit status of businesses is determined at the state level.  Approval by your state has no bearing on whether or not the business can also be regarded as an exempt organization.  The important part of that equation is that fact that net income of the exempt organization is not taxed federally.

To qualify for exempt status in the United States, an organization fills out an application package that then must be approved by the IRS. After the approval process, which can take months, the organization is then exempt from paying the normal taxes levied on a for-profit business.

Only certain types of businesses can apply for exempt status:

Obviously - not ‘for profit’ businesses

They must serve some type of common good

They cannot exert political influence

And the net income of the organization cannot benefit the members of the exempt organization.

There are two important components to the not-for-profit accountant’s job – preparing budgets and preparing the financial information for grant applications.

Budgets are crucial because the organization needs to be able to predict what amount of money has to be obtained through grants, donations and fund raising efforts in order to serve the organization’s purpose.

Then we come around full circle because all grant applications have a comprehensive financial section that asks for, among other financial reports, these budgets.  The main purpose for the grantor is to make sure that amount of management expenses are in line with money spent on program expenses.

Any exempt organization had accepts donations from the public is required to have an annual independent audit by a certified public accountant.  Additionally, the certified public accountant must take a certain amount of continuing education in the field of exempt organizations to even be able to accept the engagement.