Overview
This section establishes the cost principles used to determine allowable costs for government contracts performed by nonprofit organizations and provides a specific legal definition to identify these entities.
Key Rules
- Cost Principles: Establishes the framework for determining applicable costs for work performed by nonprofits under federal contracts.
- Organizational Purpose: The entity must be organized and operated exclusively for charitable, scientific, or educational purposes.
- No Private Inurement: No part of the organization's net earnings may benefit any private shareholder or individual.
- Political Activity Limits: The entity cannot engage in substantial propaganda, attempts to influence legislation, or participate in political campaigns for public office.
- Tax Status: The organization must be exempt from Federal income taxation under section 501 of the Internal Revenue Code.
Practical Implications
- Contractors must satisfy both IRS status and operational restrictions to qualify for the specific cost treatments outlined in FAR Subpart 31.7.
- Government auditors use these criteria to ensure that entities characterized as nonprofits are not using contract funds to benefit private individuals or engage in prohibited political lobbying.