Starting and Managing a Nonprofit Organization: A Legal Guide

By Bruce R. Hopkins | Go to book overview

CHAPTER FOUR
Nonprofit Organizations: Much
More than Charity
True or false?
The concepts of the nonprofit organization and the tax-exempt organization are the same.
Nonprofit/tax-exempt organizations mean charitable organizations.

Neither statement is true. As explained previously (see Chapter 1), the idea of a nonprofit organization is broader than that of a tax-exempt organization. This chapter summarizes the different types of tax-exempt organizations. The charitable entity is the best known type of exempt organization, but there are many other types.

The type of a tax-exempt organization is determined largely by the nature of its purposes. Thus, to qualify as an exempt entity, the organization must satisfy the appropriate primary purpose test. Indeed, the primary purpose test may determine whether a nonprofit organization can qualify as any type of exempt organization.

Because they are so popular, charitable organizations will be discussed first. The federal tax law uses the term charitable in two ways. The broader definition encompasses all organizations that are eligible to receive deductible contributions. Used this way, charitable includes entities that are religious, educational, scientific, and the like, as well as certain fraternal, cemetery, and veterans’ organizations. To get technical for a moment, most of these organizations (not the fraternal, cemetery, and veterans’ groups) are 501(c)(3) organizations—they are governed by Section 501(c)(3), one of the most widely recognized provisions of the Internal Revenue Code.

In the narrower definition, the term charitable organization is restricted to organizations that match the descriptions of that type of entity under the law.


CHARITABLE ORGANIZATIONS

The federal tax law definition of a charitable organization contains at least 15 different ways for a nonprofit entity to be charitable. These characteristics, found in the income tax regulations, IRS rulings, and federal and state court opinions, include relieving the poor or distressed or the underprivileged; advancing religion, education, or science; lessening the burdens of government; beautifying and maintaining a community; preserving natural beauty; promoting health, social welfare, environmental conservancy, arts, or patriotism; caring for orphans or animals; promoting, advancing,

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