What is a “Nonprofit”?

by | Feb 25, 2021 | 501c3, Business Entities, non-profit, Uncategorized

501c3, Business Entities, non-profit, Uncategorized

The word “nonprofits”

 

The term “nonprofit” means different things to many different people. It’s a commonly used word without a common
understanding between writer and reader. People often use the words “nonprofit” and “tax exempt” interchangeably. Congress has created almost three dozen types of tax-exempt organizations in different sections of the tax code.
Section 501(c)(3) of the tax code refers to “public charities” (also known as charitable nonprofits) and “private foundations.” The tax code considers “churches and religious organizations” (which the IRS defines to include mosques, synagogues, temples, and other houses of worship) to be “public charities.” 

 

These also include Section 501(c)(4) (social welfare organizations, homeowners associations, and volunteer fire companies), Section 501(c)(5) (includes labor unions), Section 501(c)(6) (includes chambers of commerce), and Section 501(k) (child care organizations). Each section identifies certain conditions that must be met to be exempt from paying federal income taxes. The one common condition is not paying out profits (“no part of the organization’s net earnings can inure to the benefit of any private shareholder or individual”); hence the term, “nonprofit.”

 

 

This blog does not constitute legal advice and does not establish an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

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