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Overview Of The Nonprofit Sector
The document provides an overview of the nonprofit sector, including its historical roots in Greco-Roman and Judeo-Christian traditions of community and social responsibility. It discusses the growth of philanthropy following the Industrial Revolution. Key terms like charity, philanthropy, and the various IRS classifications of nonprofits are explained. Statistics are given on the size and economic impact of the nonprofit sector in the US. Different frameworks for categorizing nonprofits are outlined, including their purposes, beneficiaries, and degree of commercialization. Issues around social enterprises and the controversy over nonprofits engaging in commercial activities are also summarized.
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Overview Of The Nonprofit Sector
- 1. © 2014 SAGEPublications, Inc. Chapter 2: Overview of theChapter 2: Overview of the Nonprofit SectorNonprofit Sector
- 2. © 2014 SAGEPublications, Inc. Historical OverviewHistorical Overview Deep roots in American history and culture •Greco-Roman culture emphasis on • Community • Citizenry • Social responsibility •Judeo-Christian culture of helping others
- 3. © 2014 SAGEPublications, Inc. The Industrial RevolutionThe Industrial Revolution The rise of great wealth resulting from the Industrial Revolution led to the modern era • John D. Rockefeller • Andrew Carnegie’s Gospel of Wealth (1889)
- 4. © 2014 SAGEPublications, Inc. Charity versus PhilanthropyCharity versus Philanthropy Charity Giving intended to meet current individual human needs or to alleviate current human suffering that is often emotionally driven and impulsive •Feed the homeless •Aid victims of a natural disaster Philanthropy Giving designed as a long- term investment in the infrastructure of society •Construction of hospitals •Endowments for universities •Charitable foundations intended to exist in perpetuity
- 5. © 2014 SAGEPublications, Inc. Searching for a CommonSearching for a Common VocabularyVocabulary • “Nonprofit” terminology does not fully capture the purpose or diversity of organizations in the sector • Possible alternatives • Independent sector • Third sector • Charitable sector • Voluntary sector • Tax-exempt sector • Civil society sector • Social enterprise and social sector
- 6. © 2014 SAGEPublications, Inc. Size of the Nonprofit Sector in theSize of the Nonprofit Sector in the U.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 all nonprofits Source: Independent Sector Data from 2012
- 7. © 2014 SAGEPublications, Inc. Strategies for CategorizingStrategies for Categorizing NonprofitsNonprofits • Purposes and activities • National Taxonomy of Exempt Entities (NTEE) • IRS classifications • Who benefits from nonprofit activities • Salamon’s Anatomy • Degree to which nonprofits are commercialized or use business principles and methods
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- 9. © 2014 SAGEPublications, Inc. IRS Classifications: Social WelfareIRS Classifications: Social Welfare OrganizationsOrganizations • IRS tax code – 501(c)(4) • Vast majority are advocacy organizations: organizations "to further the common good and general welfare of the people of a community“ • Small number are HMOs and other medical and dental insurance plans • Key differences between 501(c)(3) and 501(c)(4) status • Both groups are tax-exempt, but gifts made to 501(c)(4) organizations are not tax deductible • 501(c)(4) organizations do not face the same limitations on political activity as 501(c)(3) organizations
- 10. © 2014 SAGEPublications, Inc. IRS Classifications: CharitableIRS Classifications: Charitable NonprofitsNonprofits • IRS tax code -- 501(c)(3) • Requirements for receiving 501(c)(3) status • Organization’s mission and work must fall under at least one of eight categories defined by the IRS • Organization must meet the non-distribution test • Individual owners are not receiving benefits from the organization’s assets • Managers are not being personally enriched through excessive compensation • Organization must limit its political activities • Cannot support or oppose candidates for public office • Limits on expenditures on lobbying
- 11. © 2014 SAGEPublications, Inc. IRS Classifications: CharitableIRS Classifications: Charitable SubsectorsSubsectors • Religious congregations • Arts, culture, and humanities • Education • Environment and animals • Health • Human service • International and foreign affairs • Funding intermediaries
- 12. © 2014 SAGEPublications, Inc. IRS Classifications: Public CharitiesIRS Classifications: Public Charities and Private Foundationsand Private Foundations • Both are 501(c)(3) organizations • Definitions • Public charities -- organizations that receive most of their support from a relatively diverse set of donors or from government • Private foundations -- organizations with that receive most of their support from a single donor or a small group of donors • Differences in treatment • Taxes • Limits on lobbying
- 13. © 2014 SAGEPublications, Inc. Salamon’s AnatomySalamon’s Anatomy • Classifying nonprofit organizations by who receives the principal benefit of the organization’s activities • Member serving versus public serving • Member serving organizations exist primarily to secure benefits for the people who belong to them or who support them • Public serving organizations exist primarily to promote some aspect of social welfare
- 14. © 2014 SAGEPublications, Inc. Social Enterprise SpectrumSocial Enterprise Spectrum • Derived from Enterprising Nonprofits: A Toolkit for 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. © 2014 SAGEPublications, Inc.
- 16. © 2014 SAGEPublications, Inc. Hybrid Models and Controversy overHybrid Models and Controversy over CommercializationCommercialization • Sabeti (2009) • Increasing use of business methods by nonprofits • Growing responsiveness of business to social concerns • Movement to create a new legal category that recognizes hybrid models • Low-profit, limited liability company • Controversy over commercialization • Pro -- Reduces nonprofits’ dependence on government and charitable giving, allowing for greater independence • Con -- Leads some nonprofits to focus on the financial bottom line at the expense of their social missions
- 17. © 2014 SAGEPublications, Inc. Commercialization and Tax IssuesCommercialization and Tax Issues • Common misunderstandings -- nonprofit organizations cannot earn profits and are always exempt from taxation • Nonprofits are exempt from taxation on revenues related to activities that directly address their social missions • Revenues from activities that are not related to the mission are subject to the unrelated business income tax (UBIT) • Concern about engaging in unrelated business activities • Substantial reliance would put the organization’s tax exempt status in jeopardy
- 18. © 2014 SAGEPublications, Inc. Implications for NonprofitImplications for Nonprofit ManagersManagers • Nonprofit management as a balancing act • Organization’s mission against financial sustainability • Nonprofit sector’s unique traditions against rapid changes in competitive markets • Social and political forces against core values and independence • Nonprofit management requires a unique blend of skills, distinguishing it from management in government or the for-profit sector