2. Introduction to Nonprofits 2
What is a nonprofit organization?
- Examples?
- Legal distinctions
- incorporated in state as a nonprofit corporation
- most common ones we know ar recognized by the IRS under Section
501(c )3 of the tax code
- pay no Federal income tax
- donations from individuals may be deducted from their federal tax
returns
- corporations and foundations may give contributions
- DO pay employment taxes
- May not have to pay local sales tax, depending on state (don’t have
to in IL)
- broadly speaking, they serve education, religious, charitable, scientific,
literary purposes
- other nonprofit types would be labor unions, membership groups, etc.
3. Introduction to Nonprofits 3
Scope of Nonprofits
The private nonprofit sector comprises
• private universities
• schools
• hospitals & clinics
• day-care centers
• social service providers
• symphonies & museums
• arts organizations & theaters
• environmental organizations
• and many others eligible for tax exemption under
Section 501(c)(3) of the Internal Revenue Code.
4. Introduction to Nonprofits 4
Independent Sector, a national coalition of voluntary
organizations and foundations, estimates that there are
over three million nonprofits, many of which are not
registered with the government.. These organizations
provide
• services,
• reinforce culture,
• advocate, educate,
• address faith and spiritual needs,
• provide health,
• housing,
• jobs,
• and numerous other objectives.
Types of Organizations
5. Introduction to Nonprofits 5
Difference between 501 organizations
• 501(c) is a provision of the United States
Internal Revenue Code (26
U.S.C. § 501(c)), listing 28 types of non-
profit organizations exempt from some
federal income taxes. Many states
reference Section 501(c) for definitions of
organizations exempt from state taxation
as well.
6. Introduction to Nonprofits 6
Mission Driven not Profit Driven
Nonprofits exist to serve a mission, to
respond to a situation or opportunity that
has not been addressed. They serve
constituents left unserved by the
government and for-profit sectors.
It is the mission which provides the
meaning and direction of an
organization, as well as the uniqueness
or niche of an organization.
7. Introduction to Nonprofits 7
Service
Another major feature of nonprofits is
that most of them have a strong
service ethos. These organizations
have a commitment to helping
individuals, a particular group of people,
communities, and in some cases
national organizations fulfill a social
purpose.
8. Introduction to Nonprofits 8
What is a nonprofit organization?
Language from IRS re: “exempt purpose” –
“The exempt purposes set forth in section 501(c)(3) are charitable, religious,
educational, scientific, literary, testing for public safety, fostering national or
international amateur sports competition, and preventing cruelty to children or
animals. The term charitable is used in its generally accepted legal sense and
includes relief of the poor, the distressed, or the underprivileged; advancement of
religion; advancement of education or science; erecting or maintaining public
buildings, monuments, or works; lessening the burdens of government; lessening
neighborhood tensions; eliminating prejudice and discrimination; defending
human and civil rights secured by law; and combating community deterioration
and juvenile delinquency.”
(http://www.irs.gov/charities/charitable/article/0,,id=175418,00.html)
9. Introduction to Nonprofits 9
Key Aspects of Nonprofits
Some of the major aspects of nonprofits include
mission, service or function, constituency…
• Nonprofits are mission driven and are not owned
by individuals or shareholders
• Government tends to be program or policy
focused and are run by elected officials
• For-profits are profit oriented and have owners and
shareholders
10. Introduction to Nonprofits 10
Key Aspects of Nonprofit Organizations
Social/Operating Distinctions
- Mission driven – created to serve and fulfill “unmet needs”
- Can earn revenue in excess of operating budget (net surplus, not “profit”)
- If organization earns a surplus, that money is plowed back into the organization,
not paid out as dividend or executive bonuses
- No one owns the organization
- The board of directors serves without pay and represent the community, which
would be viewed as the organization’s true “owners”
- People who use the service of a nonprofit do not pay the full cost of that service
11. Introduction to Nonprofits 11
A KEY DISTINCTION OF ALL
NONPROFIT ORGANIZATIONS –
THEY PROVIDE SERVICES TO
PEOPLE WHO DO PAY THE FULL
COST OF PROVIDING THOSE
SERVICES. IN MANY CASES THE
USERS PAY NOTHING AT ALL.
12. Introduction to Nonprofits 12
Sources of Revenue for Nonprofits
• Donations from individuals
• Grants from corporations, foundations and
government
• Sales of goods and services (including
ticket sales)
• Government contracts
13. Introduction to Nonprofits 13
The Nonprofit Revenue Gap
72
53
47 45
30
15
10
50
38
16
10
14
3
17
54
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Education Arts &
Recreation
Health Care Social
Services
Civic &
Other
Philanthropy
Government
Fees
This is
what the
users
pay
15. Introduction to Nonprofits 15
How Big is the Nonprofit Sector?
http://www.irs.gov/taxstats/article/0,,id=168610,00.html
16. Introduction to Nonprofits 16
How Big is the Nonprofit Sector?
2006 total
contributions
=
$295 billion
2005 U.S.
consumer
spending on
new autos
=
$267 billion
19. Introduction to Nonprofits 19
How Big is the Nonprofit Sector?
We’re generous, but not
the most generous…
20. Introduction to Nonprofits 20
Employment in Nonprofits
• As of the second quarter of 2004, the latest year for which
data on nonprofit employment are available, American
charities employed 9.4 million paid workers and engaged
another 4.7 million full-time equivalent volunteer workers
for a total work force of more than 14 million workers.
• Between 2002 and 2004, the nonprofit work force grew by
5.3 percent, with both the paid and volunteer portions
growing by more than 5 percent. By contrast, overall
employment in the economy declined by 0.2 percent during
this period.
Report by the Nonprofit Employment Data Project at the Johns Hopkins Center for Civil Society Studies
24. Introduction to Nonprofits 24
441,814 paid workers - $15.8 billion in wages
Employment in the Nonprofit Sector?
25. Introduction to Nonprofits 25
Nonprofit Workforce
• "The nonprofit work force, including volunteers, now represents
10.5 percent of the country's total work force," said Lester M.
Salamon, director of the Center for Civil Society Studies within the
Johns Hopkins Institute for Policy Studies and a leading expert on
nonprofits. "Put in perspective, this means that American charities
boast a larger work force than the utility, wholesale trade and
construction industries combined.“
• Nonprofit-paid workers received $321.6 billion in wages in
2004, more than the wages paid by the utility ($50.1
billion), wholesale trade ($283.7 billion) and construction ($276
billion) industries, and almost as much as by the finance and
insurance industry ($355.8 billion).
• The average weekly wage in the nonprofit sector, at $627, was well
below the $669 average in the for-profit sector. However, in the
fields where nonprofits and for-profits are both actively
engaged, average nonprofit wages were actually higher. For
example, average wages among nonprofit hospital workers were 7
percent higher than those of for-profit hospital workers, and
average wages among nonprofit social assistance workers were 25
percent higher than those of their for-profit counterparts.
Nonprofit Employment Data Project at the Johns Hopkins Center for Civil Society Studies.
27. Introduction to Nonprofits 27
Politics and origins of the Nonprofit
Corporation
• In early American life there was no
distinction between the public and private
realm.
28. Introduction to Nonprofits 28
Differences and Similarities
Examples of voluntary
associations
• Municipal corporations/
townships
• Religious congregations
were supported by taxation
and enjoyed monopoly
power.
• Colleges were sustained by
governmental grants and
governed by clergymen
who were public actors.
Similarities to today:
• They were self
governing, with decisions
made by members who
often delegated power to
governing boards.
• They had no owners or
stockholders.
• They were exempt from
taxation.
• They could accept
donations and bequests
for charitable purposes.
29. Introduction to Nonprofits 29
• The organization of the rival Republican party in
the 1790s and tensions between religious
denominations gave ample proof that the people
did not always agree on the common good.
• As political and religious conflict intensified, leaders
clashed over control of both colleges and churches.
Both states provided tax support to the parochial
Congregational church, leading dissenters to
demand equal rights for their own churches.
Simultaneously, Federalist party leaders struggled
to retain control over Harvard and Dartmouth even
as Republicans came to power.
• In time, leaders of both parties concluded that it
was in their constituency’s interest to separate
nonprofit corporations from the state and to
protect corporate rights. Otherwise, their own
control of any institution would be threatened the
moment a rival party came to power.
30. Introduction to Nonprofits 30
Why Nonprofits?
Alex de Tocqueville (1805 – 1859)
Traveled in America in 1832. Wrote
“Democracy in America” 2 volumes
published in 1835 and 1840.
31. Introduction to Nonprofits 31
Why Nonprofits?
“Americans of all ages, all conditions, and all dispositions
constantly form associations. They have not only commercial and
manufacturing companies, in which all take part, but associations
of a thousand other kinds, religious, moral, serious, futile, general
or restricted, enormous or diminutive. The Americans make
associations to give entertainments, to found seminaries, to build
inns, to construct churches, to diffuse books, to send missionaries
to the antipodes; in this manner they found hospitals, prisons,
and schools. If it is proposed to inculcate some truth or to foster
some feeling by the encouragement of a great example, they
form a society. Wherever at the head of some new undertaking
you see the government in France, or a man of rank in England,
in the United States you will be sure to find an association… In
democratic countries the science of association is the mother of
science; the progress of all the rest depends upon the progress it
has made.”
- Democracy in America, Vol. 2
32. Introduction to Nonprofits 32
Nation Building
• Associations, private charities, and giving and
volunteering all played prominent roles in the
Civil War (1861-1865), which provided
opportunities for further advancing the claims of
private enterprise.
• At the end of the Civil War government turned
to voluntary organizations to build and staff
schools, to teach civic and vocational skills to
new freed men and women, and to reform
southern industry and agriculture.
33. Introduction to Nonprofits 33
Food for thought…
“Never doubt that a small group of
thoughtful committed citizens can change
the world. Indeed it’s the only thing that
ever has.”
Margaret Mead, anthropologist
