31.701
Purpose
FAR 31.701 defines which nonprofit organizations are subject to specific cost principles when contracting with the federal government, emphasizing eligibility and compliance with tax-exempt status.
Overview
- FAR 31.701 establishes the purpose of Subpart 31.7, which is to provide cost principles specifically for nonprofit organizations performing work under government contracts. It clarifies the definition of a nonprofit organization for the purposes of federal contracting, focusing on entities organized for charitable, scientific, or educational purposes, with restrictions on earnings distribution and political activities, and requiring exemption from federal income tax under section 501 of the Internal Revenue Code.
Key Rules
- Applicability to Nonprofit Organizations
- The cost principles in this subpart apply only to nonprofit organizations as defined in this section.
- Definition of Nonprofit Organization
- To qualify, an entity must be organized for charitable, scientific, or educational purposes, not distribute net earnings to private individuals, avoid substantial political activity, and be tax-exempt under section 501.
Responsibilities
- Contracting Officers: Must ensure that only eligible nonprofit organizations are subject to these cost principles and verify tax-exempt status.
- Contractors: Nonprofit organizations must meet the definition and maintain compliance with the requirements for tax exemption and allowable activities.
- Agencies: Oversee and enforce compliance with the definition and cost principles for nonprofit contracts.
Practical Implications
- This section ensures that only properly qualified nonprofit organizations are subject to the cost principles in Subpart 31.7, impacting eligibility for certain cost treatments. Contractors must be vigilant about maintaining their nonprofit status and compliance with IRS and FAR requirements. Common pitfalls include misunderstanding the definition or failing to maintain tax-exempt status.