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What Is a Nonprofit Organization?


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Definition: An organization in which no owner, stockholder or trustee shares in profits and losses, and which exists not to earn revenue but to promote a mission that enhances the public welfare. These organizations are often eligible for tax-exempt status and some, but not all, can receive tax-deductible contributions.

Nonprofit refers to groups whose purposes are to benefit the public. A nonprofit is exempt from income tax under Sections 501(c)(3) or 501(c)(4) of the federal Internal Revenue Code. There are actually 20 categores of tax-exampt organizations under Section 501 of the tax code. All of these are considered "nonprofit" organizations.

Charities are classified as 501(c)(3) tax-exempt organizations. These include organizations whose purposes are:

  • charitable
  • religious
  • educational
  • scientific
  • literary
  • testing for public safety
  • fostering national or international amateur athletic competition
  • preventing cruelty to children or animals.

Furthermore, "charitable purposes" are defined as activities beneficial to the public interest and serving an open class of people, not a limited number of identified people. Examples of charitable purposes include:

  • relieving the poor, distressed or underprivileged
  • advancing education or science (distinct from instruction which would be an educational purpose)
  • erecting or maintaining public buildings, monuments or works
  • lessening the burdens of government
  • eliminating prejudice and discrimination
  • promoting and developing the arts
  • defending human and civil rights that are secured by law

When you apply for 501(c)(3) status, your "charitable purpose" might fit into one or several of these categories.

501(c)(3) tax-exempt charities may provide a charitable deduction to donors. Such charities are prohibited from lobbying and other forms of political action. Read more at How Not to Lose Your Tax-Exempt Status.

501(c)(4) nonprofits are called "social welfare" organizations and often pursue changes in public policy in order to influence the legislative process. This type of nonprofit may engage in political activity to some extent. For more details, see Can Nonprofits Engage in Political Activity?

Also Known As: Nonprofit Corporation, NPO, NGO, public benefit organization

Alternate Spellings: Non-profit - Not-for-Profit

Examples: Northwest Hospital is a nonprofit organization.

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