Starting and Managing a Nonprofit Organization: A Legal Guide

By Bruce R. Hopkins | Go to book overview

Glossary

Some of the terms listed here may seem deceptively simple. What could be plainer, for example, than additional tax? The law of nonprofit organizations, however, has some complex and specialized definitions and applications for apparently ordinary terms. In some instances, it is inadvisable to try to paraphrase or “popularize” them. My best advice to readers, generally, is to supplement the Glossary by going directly to the Internal Revenue Code sections cited here and reading the original definitions and discussions. A key factor in successfully starting and managing a nonprofit organization is to know what the IRS says about a particular topic and what it means when it says it.

Abatement. In general, a decrease or diminution; in the nonprofit organization tax law context, relief from a tax liability. For example, the IRS has the ability to abate an intermediate sanctions penalty and nearly all of the excise taxes imposed on private foundations (IRC § 4962).

Actuary. A specialist in projecting amounts of income, interest, or expense over future periods of time. Actuaries create the tables used in calculating income interests and remainder interests, which are important in implementing planned giving.

Additional tax. Under the tax rules that apply to private foundations, initial (excise) taxes are assessed first, on the foundations and their managers, as a method of enforcing the rules. If the offense is not corrected, additional (excise) taxes or “second-tier taxes” are added to encourage compliance with the rules. A similar two-tiered tax structure is part of the intermediate sanctions tax regime.

Adjusted gross income. In the case of an individual, the before-taxes amount that results when certain deductions are subtracted from his or her gross income (IRC § 62).

Advisory committee. A group of individuals who make their expertise and experience—and sometimes their celebrity—available to the board of directors of a nonprofit organization;a technique for attracting well-known persons to service for an organization without causing them to become involved in its actual governance.

Advocacy. The active espousal of a position, a point of view, or a course of action; it can include lobbying, political activity, demonstrations, boycotts, litigation, and various forms of program activity.

Affinity card. This is a credit card issued by, or in connection with, a commercial financial institution, where the users of the cards are confined to the membership or other constituency of a tax-exempt organization; a percentage of the resulting profit is paid to the exempt organization. If the card arrangement is structured properly, the exempt organization receives the payments (as income) as a tax-excludable royalty.

Agricultural organization. An organization described in IRC § 501(c)(5).

Amateur sports organization. An organization formed and operated exclusively to foster national or international amateur sports competition, to conduct national or international competitive sports events, or to support and develop amateur athletes for national or international competition in sports (IRC § 501(j)).

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