Introduction to Nonprofits 2What 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 Section501(c )3 of the tax code- pay no Federal income tax- donations from individuals may be deducted from their federal taxreturns- corporations and foundations may give contributions- DO pay employment taxes- May not have to pay local sales tax, depending on state (don’t haveto in IL)- broadly speaking, they serve education, religious, charitable, scientific,literary purposes- other nonprofit types would be labor unions, membership groups, etc.
Introduction to Nonprofits 3Scope of NonprofitsThe 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 underSection 501(c)(3) of the Internal Revenue Code.
Introduction to Nonprofits 4Independent Sector, a national coalition of voluntaryorganizations and foundations, estimates that there areover three million nonprofits, many of which are notregistered with the government.. These organizationsprovide• services,• reinforce culture,• advocate, educate,• address faith and spiritual needs,• provide health,• housing,• jobs,• and numerous other objectives.Types of Organizations
Introduction to Nonprofits 5Difference between 501 organizations• 501(c) is a provision of the United StatesInternal Revenue Code (26U.S.C. § 501(c)), listing 28 types of non-profit organizations exempt from somefederal income taxes. Many statesreference Section 501(c) for definitions oforganizations exempt from state taxationas well.
Introduction to Nonprofits 6Mission Driven not Profit DrivenNonprofits exist to serve a mission, torespond to a situation or opportunity thathas not been addressed. They serveconstituents left unserved by thegovernment and for-profit sectors.It is the mission which provides themeaning and direction of anorganization, as well as the uniquenessor niche of an organization.
Introduction to Nonprofits 7ServiceAnother major feature of nonprofits isthat most of them have a strongservice ethos. These organizationshave a commitment to helpingindividuals, a particular group of people,communities, and in some casesnational organizations fulfill a socialpurpose.
Introduction to Nonprofits 8What 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 orinternational amateur sports competition, and preventing cruelty to children oranimals. The term charitable is used in its generally accepted legal sense andincludes relief of the poor, the distressed, or the underprivileged; advancement ofreligion; advancement of education or science; erecting or maintaining publicbuildings, monuments, or works; lessening the burdens of government; lesseningneighborhood tensions; eliminating prejudice and discrimination; defendinghuman and civil rights secured by law; and combating community deteriorationand juvenile delinquency.”(http://www.irs.gov/charities/charitable/article/0,,id=175418,00.html)
Introduction to Nonprofits 9Key Aspects of NonprofitsSome of the major aspects of nonprofits includemission, service or function, constituency…• Nonprofits are mission driven and are not ownedby individuals or shareholders• Government tends to be program or policyfocused and are run by elected officials• For-profits are profit oriented and have owners andshareholders
Introduction to Nonprofits 10Key Aspects of Nonprofit OrganizationsSocial/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, whichwould 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
Introduction to Nonprofits 11A KEY DISTINCTION OF ALLNONPROFIT ORGANIZATIONS –THEY PROVIDE SERVICES TOPEOPLE WHO DO PAY THE FULLCOST OF PROVIDING THOSESERVICES. IN MANY CASES THEUSERS PAY NOTHING AT ALL.
Introduction to Nonprofits 12Sources of Revenue for Nonprofits• Donations from individuals• Grants from corporations, foundations andgovernment• Sales of goods and services (includingticket sales)• Government contracts
Introduction to Nonprofits 13The Nonprofit Revenue Gap725347 453015105038161014317540%10%20%30%40%50%60%70%80%90%100%Education Arts &RecreationHealth Care SocialServicesCivic &OtherPhilanthropyGovernmentFeesThis iswhat theuserspay
Introduction to Nonprofits 14How Big is the Nonprofit Sector?
Introduction to Nonprofits 15How Big is the Nonprofit Sector?http://www.irs.gov/taxstats/article/0,,id=168610,00.html
Introduction to Nonprofits 16How Big is the Nonprofit Sector?2006 totalcontributions=$295 billion2005 U.S.consumerspending onnew autos=$267 billion
Introduction to Nonprofits 17How Big is the Nonprofit Sector?Where 2006 contributions went…
Introduction to Nonprofits 18How Big is the Nonprofit Sector?Where 2010 contributions went…
Introduction to Nonprofits 19How Big is the Nonprofit Sector?We’re generous, but notthe most generous…
Introduction to Nonprofits 20Employment in Nonprofits• As of the second quarter of 2004, the latest year for whichdata on nonprofit employment are available, Americancharities employed 9.4 million paid workers and engagedanother 4.7 million full-time equivalent volunteer workersfor a total work force of more than 14 million workers.• Between 2002 and 2004, the nonprofit work force grew by5.3 percent, with both the paid and volunteer portionsgrowing by more than 5 percent. By contrast, overallemployment in the economy declined by 0.2 percent duringthis period.Report by the Nonprofit Employment Data Project at the Johns Hopkins Center for Civil Society Studies
Introduction to Nonprofits 21Employment the Nonprofit Sector
Introduction to Nonprofits 22Employment in the Nonprofit Sector
Introduction to Nonprofits 23Employment in the Nonprofit Sector?
Introduction to Nonprofits 24441,814 paid workers - $15.8 billion in wagesEmployment in the Nonprofit Sector?
Introduction to Nonprofits 25Nonprofit Workforce• "The nonprofit work force, including volunteers, now represents10.5 percent of the countrys total work force," said Lester M.Salamon, director of the Center for Civil Society Studies within theJohns Hopkins Institute for Policy Studies and a leading expert onnonprofits. "Put in perspective, this means that American charitiesboast a larger work force than the utility, wholesale trade andconstruction industries combined.“• Nonprofit-paid workers received $321.6 billion in wages in2004, more than the wages paid by the utility ($50.1billion), wholesale trade ($283.7 billion) and construction ($276billion) industries, and almost as much as by the finance andinsurance industry ($355.8 billion).• The average weekly wage in the nonprofit sector, at $627, was wellbelow the $669 average in the for-profit sector. However, in thefields where nonprofits and for-profits are both activelyengaged, average nonprofit wages were actually higher. Forexample, average wages among nonprofit hospital workers were 7percent higher than those of for-profit hospital workers, andaverage wages among nonprofit social assistance workers were 25percent higher than those of their for-profit counterparts.Nonprofit Employment Data Project at the Johns Hopkins Center for Civil Society Studies.
Introduction to Nonprofits 27Politics and origins of the NonprofitCorporation• In early American life there was nodistinction between the public and privaterealm.
Introduction to Nonprofits 28Differences and SimilaritiesExamples of voluntaryassociations• Municipal corporations/townships• Religious congregationswere supported by taxationand enjoyed monopolypower.• Colleges were sustained bygovernmental grants andgoverned by clergymenwho were public actors.Similarities to today:• They were selfgoverning, with decisionsmade by members whooften delegated power togoverning boards.• They had no owners orstockholders.• They were exempt fromtaxation.• They could acceptdonations and bequestsfor charitable purposes.
Introduction to Nonprofits 29• The organization of the rival Republican party inthe 1790s and tensions between religiousdenominations gave ample proof that the peopledid not always agree on the common good.• As political and religious conflict intensified, leadersclashed over control of both colleges and churches.Both states provided tax support to the parochialCongregational church, leading dissenters todemand equal rights for their own churches.Simultaneously, Federalist party leaders struggledto retain control over Harvard and Dartmouth evenas Republicans came to power.• In time, leaders of both parties concluded that itwas in their constituency’s interest to separatenonprofit corporations from the state and toprotect corporate rights. Otherwise, their owncontrol of any institution would be threatened themoment a rival party came to power.
Introduction to Nonprofits 30Why Nonprofits?Alex de Tocqueville (1805 – 1859)Traveled in America in 1832. Wrote“Democracy in America” 2 volumespublished in 1835 and 1840.
Introduction to Nonprofits 31Why Nonprofits?“Americans of all ages, all conditions, and all dispositionsconstantly form associations. They have not only commercial andmanufacturing companies, in which all take part, but associationsof a thousand other kinds, religious, moral, serious, futile, generalor restricted, enormous or diminutive. The Americans makeassociations to give entertainments, to found seminaries, to buildinns, to construct churches, to diffuse books, to send missionariesto the antipodes; in this manner they found hospitals, prisons,and schools. If it is proposed to inculcate some truth or to fostersome feeling by the encouragement of a great example, theyform a society. Wherever at the head of some new undertakingyou see the government in France, or a man of rank in England,in the United States you will be sure to find an association… Indemocratic countries the science of association is the mother ofscience; the progress of all the rest depends upon the progress ithas made.”- Democracy in America, Vol. 2
Introduction to Nonprofits 32Nation Building• Associations, private charities, and giving andvolunteering all played prominent roles in theCivil War (1861-1865), which providedopportunities for further advancing the claims ofprivate enterprise.• At the end of the Civil War government turnedto voluntary organizations to build and staffschools, to teach civic and vocational skills tonew freed men and women, and to reformsouthern industry and agriculture.
Introduction to Nonprofits 33Food for thought…“Never doubt that a small group ofthoughtful committed citizens can changethe world. Indeed it’s the only thing thatever has.”Margaret Mead, anthropologist