Chapter 1
Overview of NonProfit Sector
American’s Non-profit Sector: A Historical Overview
The roots of America’s np sector in the ancient traditions of charity, philanthropy, and
voluntarism. According to Steven Ott, 2 traditions (Greco-Roman: community,
citizenry, social responsibility & Judeo-Christian ethic of helping others) influenced
traditions in Western societies.
The legal foundations of America’s np sector are drawn from English Law,
particularly the Statute of Charitable Uses and the Poor Law passed in 1601.
Tocqueville Democracy in America: the purpose of establishing voluntary
associations was to address social and political objectives since they were providing
many services. + mistrust of government also contributed to the support for private
and voluntary initiatives.
Industrial revolution resulted in great wealth and Rockefeller and Carnegie were the
philanthropist of that time. Carnegie in his book talked about the importance of
individuals to give back to the society (man who dies rich dies disgraced).
1960s-1970s: increased government spending in social programs (Pr. Lyndon
Johnson).
1980s- Federal spending for social programs was reduced. (Pr. Ronald Reagan).
Charity: defined as giving intended to meet current individual human needs or to
alleviate current human-suffering (emotional driven) (feeding homeless).
Philanthropy: (voluntary action for public good) is more rational form of long term
investment in the infrastructure of society (gifts to construct new hospital, etc).
Difference between voluntarism and charity& philanthropy is that voluntarism is a
very active process that required active involvement with the organization or group
that serves a specific population, however, the other 2 do not.
Searching for a Common Vocabulary:
Thomas Wolf: describing an elephant as non-horse is unsatisfactory definition,
because term n.p refers to one thing n.p do not do, rather than capturing much about
what they are or the diverse programs and services they offer to society.
Misunderstanding of n.p cannot earn profit: this is wrong, they can earn however, it
should be maintained in the organization and must only be spent for the future
programs of the organization.
Nongovernmental organizations are n.p however they operate internationally.
NGOs are performing government-like functions and they get revenues from
government sources.
Alternatives to N.P:
Independent sector: Independent from what? They are depended on resources
from government and private donors, and subject to laws.
Third sector: between government and business sector. However, why it should be
the third one? By size, maybe but the importance is much bigger for some.
, Charitable sector: problem is that charitable gifts are not the largest source of n.p
revenues and this term is not synonymous for n.p sector. + there are many n.p that
consists of entirely grants and contracts received by government.
Voluntary sector: this is in the foundation of sector; however, paid staff members
exceed volunteers.
Tax-exempt Sector: commonly used by accountants, attorneys, etc. It describes
organizations in terms of their status under US tax law. Np does not pay federal
income, and state and local income taxes. Tax-exempt does not identify that they
actually do.
Civil society Sector: np provides the organizational infrastructure of civil society
however concept is abstract and citizen based.
Social enterprise: having a social objective but blend traditional n.p methods and
commercial principals in their generation of revenue. It more emphasizes
businesslike approach to the n.p.
Size of US NP sector
Religious organizations are not required to register with Internal Revenue Service making
overall number difficult to count. + until 2008, whose annual revenues were less than 25000$
were not required to be registered.
mid 1990s: more than 1.600.000 n.p in US and constituted 7% of US workforce.
Growth of n.p: 1) devolution of federal programs + outsourcing pf provision by n.p +
reawakening of the spirit of public service among American citizens (requirement of
community service for graduation).
Putnam: decline in civic engagement: Americans who witnessed 9/11 engaged more in public
affairs.
Differentiating the N.P sector:
IRS Classifications: Most practical way to divide the n.p sector is by categories applied by
IRS in recognizing tax exemption.
Political parties (527), farmers (521), n.p (501©) are categories of tax-exemption.
Charitable Nonprofits 501c (3)
All organizations under Section 501c of IRS code are tax-exempt, that is they are not
required to pay federal taxes on their income. (they are also tax-exempt from state and
local income taxes). However, only 501 c (3)- charitable nonprofits are both tax-
exempt themselves and also eligible to receive gifts that are tax deductible for the
donors. Tax deductibility of gifts made to charitable n.p obviously provides a
significant advantage to them in their fundraising efforts. The tax deduction gifts to
charitable organizations is intended to encourage charitable giving and sustain
services provided by charitable organizations.
To be recognized as tax-exempt under Section 501c (3), an organization must
demonstrate 3 things: 1) it must be organized and operated one or more of eight
purposes (charitable, religious, educational, scientific, literary, and prevention of
cruelty to children and animals). 2) it must meet no distribution test, ensuring that its
assets are not being used to benefit individual owners and 3) it must limit its political
activities only lobbying is allowed.
Social Welfare Organizations 501c (4):
Overview of NonProfit Sector
American’s Non-profit Sector: A Historical Overview
The roots of America’s np sector in the ancient traditions of charity, philanthropy, and
voluntarism. According to Steven Ott, 2 traditions (Greco-Roman: community,
citizenry, social responsibility & Judeo-Christian ethic of helping others) influenced
traditions in Western societies.
The legal foundations of America’s np sector are drawn from English Law,
particularly the Statute of Charitable Uses and the Poor Law passed in 1601.
Tocqueville Democracy in America: the purpose of establishing voluntary
associations was to address social and political objectives since they were providing
many services. + mistrust of government also contributed to the support for private
and voluntary initiatives.
Industrial revolution resulted in great wealth and Rockefeller and Carnegie were the
philanthropist of that time. Carnegie in his book talked about the importance of
individuals to give back to the society (man who dies rich dies disgraced).
1960s-1970s: increased government spending in social programs (Pr. Lyndon
Johnson).
1980s- Federal spending for social programs was reduced. (Pr. Ronald Reagan).
Charity: defined as giving intended to meet current individual human needs or to
alleviate current human-suffering (emotional driven) (feeding homeless).
Philanthropy: (voluntary action for public good) is more rational form of long term
investment in the infrastructure of society (gifts to construct new hospital, etc).
Difference between voluntarism and charity& philanthropy is that voluntarism is a
very active process that required active involvement with the organization or group
that serves a specific population, however, the other 2 do not.
Searching for a Common Vocabulary:
Thomas Wolf: describing an elephant as non-horse is unsatisfactory definition,
because term n.p refers to one thing n.p do not do, rather than capturing much about
what they are or the diverse programs and services they offer to society.
Misunderstanding of n.p cannot earn profit: this is wrong, they can earn however, it
should be maintained in the organization and must only be spent for the future
programs of the organization.
Nongovernmental organizations are n.p however they operate internationally.
NGOs are performing government-like functions and they get revenues from
government sources.
Alternatives to N.P:
Independent sector: Independent from what? They are depended on resources
from government and private donors, and subject to laws.
Third sector: between government and business sector. However, why it should be
the third one? By size, maybe but the importance is much bigger for some.
, Charitable sector: problem is that charitable gifts are not the largest source of n.p
revenues and this term is not synonymous for n.p sector. + there are many n.p that
consists of entirely grants and contracts received by government.
Voluntary sector: this is in the foundation of sector; however, paid staff members
exceed volunteers.
Tax-exempt Sector: commonly used by accountants, attorneys, etc. It describes
organizations in terms of their status under US tax law. Np does not pay federal
income, and state and local income taxes. Tax-exempt does not identify that they
actually do.
Civil society Sector: np provides the organizational infrastructure of civil society
however concept is abstract and citizen based.
Social enterprise: having a social objective but blend traditional n.p methods and
commercial principals in their generation of revenue. It more emphasizes
businesslike approach to the n.p.
Size of US NP sector
Religious organizations are not required to register with Internal Revenue Service making
overall number difficult to count. + until 2008, whose annual revenues were less than 25000$
were not required to be registered.
mid 1990s: more than 1.600.000 n.p in US and constituted 7% of US workforce.
Growth of n.p: 1) devolution of federal programs + outsourcing pf provision by n.p +
reawakening of the spirit of public service among American citizens (requirement of
community service for graduation).
Putnam: decline in civic engagement: Americans who witnessed 9/11 engaged more in public
affairs.
Differentiating the N.P sector:
IRS Classifications: Most practical way to divide the n.p sector is by categories applied by
IRS in recognizing tax exemption.
Political parties (527), farmers (521), n.p (501©) are categories of tax-exemption.
Charitable Nonprofits 501c (3)
All organizations under Section 501c of IRS code are tax-exempt, that is they are not
required to pay federal taxes on their income. (they are also tax-exempt from state and
local income taxes). However, only 501 c (3)- charitable nonprofits are both tax-
exempt themselves and also eligible to receive gifts that are tax deductible for the
donors. Tax deductibility of gifts made to charitable n.p obviously provides a
significant advantage to them in their fundraising efforts. The tax deduction gifts to
charitable organizations is intended to encourage charitable giving and sustain
services provided by charitable organizations.
To be recognized as tax-exempt under Section 501c (3), an organization must
demonstrate 3 things: 1) it must be organized and operated one or more of eight
purposes (charitable, religious, educational, scientific, literary, and prevention of
cruelty to children and animals). 2) it must meet no distribution test, ensuring that its
assets are not being used to benefit individual owners and 3) it must limit its political
activities only lobbying is allowed.
Social Welfare Organizations 501c (4):
