Overview Of The Nonprofit Sector


Published on

Chapter 2 from "Nonprofit Management," Third Edition by Michael J. Worth, https://secure.sagepub.com/protected/worth3e/icfr/intro.htm

Published in: News & Politics
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Overview Of The Nonprofit Sector

  1. 1. © 2014 SAGE Publications, Inc.Chapter 2: Overview of theChapter 2: Overview of theNonprofit SectorNonprofit Sector
  2. 2. © 2014 SAGE Publications, Inc.Historical OverviewHistorical OverviewDeep roots in American history and culture•Greco-Roman culture emphasis on• Community• Citizenry• Social responsibility•Judeo-Christian culture of helping others
  3. 3. © 2014 SAGE Publications, Inc.The Industrial RevolutionThe Industrial RevolutionThe rise of great wealth resulting from theIndustrial Revolution led to the modern era• John D. Rockefeller• Andrew Carnegie’s Gospel of Wealth (1889)
  4. 4. © 2014 SAGE Publications, Inc.Charity versus PhilanthropyCharity versus PhilanthropyCharityGiving intended to meetcurrent individual humanneeds or to alleviatecurrent human sufferingthat is often emotionallydriven and impulsive•Feed the homeless•Aid victims of a naturaldisasterPhilanthropyGiving designed as a long-term investment in theinfrastructure of society•Construction of hospitals•Endowments for universities•Charitable foundationsintended to exist inperpetuity
  5. 5. © 2014 SAGE Publications, Inc.Searching for a CommonSearching for a CommonVocabularyVocabulary• “Nonprofit” terminology does not fully capturethe purpose or diversity of organizations in thesector• Possible alternatives• Independent sector• Third sector• Charitable sector• Voluntary sector• Tax-exempt sector• Civil society sector• Social enterprise and social sector
  6. 6. © 2014 SAGE Publications, Inc.Size of the Nonprofit Sector in theSize of the Nonprofit Sector in theU.S.U.S.• 1.9 million tax-exempt organizations• 1.4 million charitable nonprofits -- 501(c)(3)• 138,000 501 (c) (4)• 13.5 million employees (10% of U.S. workforce)• $668 billion in wages and benefits to employees• $1.1 trillion in spending (5% of U.S. GDP)• $4.3 trillion in total combined assets of allnonprofitsSource: Independent SectorData from 2012
  7. 7. © 2014 SAGE Publications, Inc.Strategies for CategorizingStrategies for CategorizingNonprofitsNonprofits• Purposes and activities• National Taxonomy of Exempt Entities (NTEE)• IRS classifications• Who benefits from nonprofit activities• Salamon’s Anatomy• Degree to which nonprofits are commercializedor use business principles and methods
  8. 8. © 2014 SAGE Publications, Inc.
  9. 9. © 2014 SAGE Publications, Inc.IRS Classifications: Social WelfareIRS Classifications: Social WelfareOrganizationsOrganizations• IRS tax code – 501(c)(4)• Vast majority are advocacy organizations:organizations "to further the common good andgeneral welfare of the people of a community“• Small number are HMOs and other medical anddental insurance plans• Key differences between 501(c)(3) and 501(c)(4)status• Both groups are tax-exempt, but gifts made to501(c)(4) organizations are not tax deductible• 501(c)(4) organizations do not face the samelimitations on political activity as 501(c)(3)organizations
  10. 10. © 2014 SAGE Publications, Inc.IRS Classifications: CharitableIRS Classifications: CharitableNonprofitsNonprofits• IRS tax code -- 501(c)(3)• Requirements for receiving 501(c)(3) status• Organization’s mission and work must fall underat least one of eight categories defined by the IRS• Organization must meet the non-distribution test• Individual owners are not receiving benefitsfrom the organization’s assets• Managers are not being personally enrichedthrough excessive compensation• Organization must limit its political activities• Cannot support or oppose candidates for publicoffice• Limits on expenditures on lobbying
  11. 11. © 2014 SAGE Publications, Inc.IRS Classifications: CharitableIRS Classifications: CharitableSubsectorsSubsectors• Religious congregations• Arts, culture, and humanities• Education• Environment and animals• Health• Human service• International and foreign affairs• Funding intermediaries
  12. 12. © 2014 SAGE Publications, Inc.IRS Classifications: Public CharitiesIRS Classifications: Public Charitiesand Private Foundationsand Private Foundations• Both are 501(c)(3) organizations• Definitions• Public charities -- organizations that receivemost of their support from a relatively diverseset of donors or from government• Private foundations -- organizations with thatreceive most of their support from a singledonor or a small group of donors• Differences in treatment• Taxes• Limits on lobbying
  13. 13. © 2014 SAGE Publications, Inc.Salamon’s AnatomySalamon’s Anatomy• Classifying nonprofit organizations by whoreceives the principal benefit of theorganization’s activities• Member serving versus public serving• Member serving organizations exist primarilyto secure benefits for the people who belongto them or who support them• Public serving organizations exist primarily topromote some aspect of social welfare
  14. 14. © 2014 SAGE Publications, Inc.Social Enterprise SpectrumSocial Enterprise Spectrum• Derived from Enterprising Nonprofits: A Toolkitfor Social Entrepreneurs (Dees et al., 2001 )• Two extremes• Purely philanthropic• Purely commercial• Organization’s placement on the spectrum• General motives, methods, and goals• Relationships with key stakeholders
  15. 15. © 2014 SAGE Publications, Inc.
  16. 16. © 2014 SAGE Publications, Inc.Hybrid Models and Controversy overHybrid Models and Controversy overCommercializationCommercialization• Sabeti (2009)• Increasing use of business methods by nonprofits• Growing responsiveness of business to socialconcerns• Movement to create a new legal category thatrecognizes hybrid models• Low-profit, limited liability company• Controversy over commercialization• Pro -- Reduces nonprofits’ dependence ongovernment and charitable giving, allowing forgreater independence• Con -- Leads some nonprofits to focus on thefinancial bottom line at the expense of their socialmissions
  17. 17. © 2014 SAGE Publications, Inc.Commercialization and Tax IssuesCommercialization and Tax Issues• Common misunderstandings -- nonprofitorganizations cannot earn profits and are alwaysexempt from taxation• Nonprofits are exempt from taxation onrevenues related to activities that directlyaddress their social missions• Revenues from activities that are not related tothe mission are subject to the unrelated businessincome tax (UBIT)• Concern about engaging in unrelated businessactivities• Substantial reliance would put the organization’stax exempt status in jeopardy
  18. 18. © 2014 SAGE Publications, Inc.Implications for NonprofitImplications for NonprofitManagersManagers• Nonprofit management as a balancing act• Organization’s mission against financialsustainability• Nonprofit sector’s unique traditions againstrapid changes in competitive markets• Social and political forces against core valuesand independence• Nonprofit management requires a unique blendof skills, distinguishing it from management ingovernment or the for-profit sector