Tax-exempt status refers to a designation granted by the government that allows certain organizations, such as nonprofits and charities, to avoid paying federal income taxes. This status is typically given to organizations that operate for specific purposes, like religious, educational, or charitable activities, and helps them allocate more resources toward their missions. To qualify for tax-exempt status, organizations must apply to the Internal Revenue Service (IRS) and meet specific criteria outlined in the tax code. Once approved, they can receive donations that are also tax-deductible for the donors, encouraging more contributions to support their work.