Lexicon 1: Organizational Status

In Furtherance of a Lexicon

Article 1: Defining the terms that describe our organizational status.

In informal conversations we all use the term ‘nonprofit’. It is the most direct way to indicate a differentiation from a profit seeking business. Using such a term, informally, is completely acceptable. Using terms informally, however, does not alleviate our need to understand and utilize precise terminology when operating in a formal context. Accordingly, here is your very quick tutorial on three commonly used terms in the nonprofit sector:

Nonprofit Organization ( aka Non-Profit, NPO, or Not-For-Profit): Definition- Using surplus revenue to further achieve its ultimate objective, rather than distributing its income to the organization's shareholders, leaders, or members. When we use this term we are referring to the entity type used to register in the state of incorporation. We do not necessarily indicate that donations to this entity are eligible for deduction. We do not necessarily indicate that the entity is exempt from federal taxation. Idaho entities that have this status are subject to Idaho Code Title 30, Chapter 30. Q- “What type of entity are you?” A- “An Idaho Nonprofit Corporation”.

Tax-exempt Organization: Definition- This classification indicates that the entity has achieved recognition by the IRS as exempt from income tax, under IRC 501(c), for income derived from activities related to its exempt purpose. Additionally, donations to this entity may qualify the donor for deductions. Various entities may achieve recognition of exemption, including Nonprofit Corporations. Q- “What is your Federal tax treatment?” A- “We are recognized by the IRS as exempt under 501(c)(3). We are a tax-exempt organization for Federal Purposes.”

Charitable Organization (aka Charity): Definition- recognized as organized and operating exclusively for charitable purposes, often under 501(c)(3). Various non-charitable organizations may achieve recognition of exemption from federal income tax under IRC 501 (c) but only organizations operating for exclusively charitable purposes are recognized under IRC 501(c) subsection (3). No part of a charitable organization's net earnings may inure to the benefit of any private shareholder or individual nor may the charity operate to benefit any private interests. Recognized exempt purposes for a charity are religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, preventing cruelty to children or animals or “charitable” where charitable includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency. Q- “What kind of a tax-exempt organization are you?” A- “We are a Charitable Organization.” Q- “What do you do?” A- “We operate exclusively for the exempt purposes of _____”.

Stay tuned for Article 2: Defining the term “donation”.

• By Nicholas R. Morgan, founding attorney at Idaho Nonprofit Law