Defining Nonprofit Organizations

EKU Online > Defining Nonprofit Organizations

There are roughly 1.5 million IRS registered tax-exempt organizations in the United States. These organizations play a significant role in the U.S. economy, providing many job prospects. However, students may not have a full grasp of the scope of nonprofit employment opportunities. To get a sense for the opportunities available in this sector, let us look at how we can define nonprofits.

Many Types of Organizations Represented within Nonprofits

When thinking about nonprofits, the image that comes to mind may be one of a small group of dedicated volunteers working with limited funds to help those in need in their communities. While some nonprofits do resemble this image, the reality today is more complicated.

Nonprofit organization and nonprofit sector are broad terms used to describe a wide range of organizations that serve many purposes and constituencies. These terms can apply to social welfare organizations, charitable organizations, faith-based organizations, health services, education institutions, and others. It is difficult to define the widespread scope of all nonprofits under one term and there are multiple ways to categorize nonprofit organizations.

How to Distinguish Nonprofits from Other Organizations

Admitting the complicated task of defining nonprofits today, there are several components of nonprofits that can help distinguish them from other organizations.

First, unlike for-profit organizations, nonprofits cannot distribute profits as dividends. Some may assume that nonprofits cannot collect any profit or surplus revenue. In reality, organizations can and do try to increase their assets. However, for nonprofits, any surpluses or excess revenue generated for the organization are put back into the mission of the organization and used to further the organization and its efforts. The funds generated by nonprofits cannot be distributed as dividends or to increase an individual’s wealth, which distinguishes them from the for-profit sector.

The second component of nonprofit organizations is that they are not controlled by the government. Government may provide funding to organizations or their constituencies in various ways, but government does not manage nonprofit organizations.

The third component of nonprofits is that they are generally tax-exempt under U.S. tax code. Tax-exempt organizations do not pay federal income tax and are generally free from paying state or local income tax as well. The IRS tax code governing the nonprofit sector is fairly complex—there are 501(c)(4) organizations, 501(c)(3) organizations, and other tax-exempt organizations. Knowing the IRS tax status of an organization doesn’t provide information about the actual work of the organization, but does provide information about its legal status and clues about the organization’s classification.

In conclusion, defining nonprofits is a difficult task. Much of how we define nonprofits focuses on what nonprofits are not—they are not government or for-profit organizations. What is clear is the potential growth in the nonprofit area. There are more than a million nonprofit organizations in the United States, and that number has been growing, leading to many diverse opportunities for employment in the nonprofit sector.

Interested in learning more about nonprofit management?

Eastern Kentucky University’s online master of public administration (MPA) program offers a certificate in nonprofit management. Earn a certificate as you complete your degree at no additional cost or complete the certificate as a standalone program.

Earn your MPA from a regionally accredited university that has been an online education leader for over 15 years. Our flexible, online format provides students the ability to complete coursework and assignments according to their schedule.

Complete the form to learn more about how EKU Online’s MPA program can help advance your career.

By: Anne Cizmar, Associate Professor and MPA Program Coordinator

Dr. Cizmar received her Ph.D. from the University of Maryland. Her research and academic interests include the American presidency and public opinion.  Dr. Cizmar’s work is published in several journals including Political Research Quarterly and Public Administration Quarterly.

Learn More