The idea of the “volunteer” far predates the commonly known organization called the “Nonprofit.” As widely known as nonprofits are in the twenty-first century, their place of origin only found a firm foundation in the 1970’s. The IRS, at the realization that laws were needed to regulate the tax code, with respect to mission-driven organizations, created Section 501 in the Internal Revenue Code of 1954. This section, loosely stated, describes that tax exempt donations could be given to nonprofit organizations. Thus, the nonprofit organization was born.
Before the nonprofit was established in the United States, in particular, citizens were actively at work for centuries, trying to provide for the people of their society in creative and new ways that no one had ever done before. Paul Arnsberger, Melissa Ludlum, Margaret Riley, and Mark Stanton of the IRS think Alexis de Tocqueville said it best in his 1831 renowned visit to the USA:
“Americans of all ages, conditions, and dispositions constantly unite together. Not only do they have commercial and industrial associations to which all belong but also a thousand other kinds, religious, moral, serious, futile…Americans group together to hold fetes, found seminaries, build inns, construct churches, distribute books…They establish prisons, schools by the same method…I have frequently admired the endless skill with which the inhabitants of the United States manage to set a common aim to the efforts of a great number of men and to persuade them to pursue it voluntarily.”
Defining the Umbrella Term
According to Peter Dobkin Hall, Hauser Center for Nonprofit Organizations’ Senior Research Fellow at Harvard University:
“The terms nonprofit sector and nonprofit organization are neologisms. Coined by economists, lawyers, and policy scientists in the decades following World War II as part of an effort to describe and classify the organizational domain for tax, policy, and regulatory purposes, the meaning varies depending on the identity and intentions of the user.”
According to the IRS:
“To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.”
Breaking Down the Term
When someone uses the term “nonprofit organization,” it is usually used to reference parts of the tax code covered in either Section 501(c)(3) or 501(c)(4). From a more inclusive standpoint, Hall explains, it includes, “political parties, trade associations, mutual benefit associations, and other entities that enjoy various degrees of exemption, accord donors various kinds of tax relief, and are constrained in distributing their surpluses in the form of dividends.” Although numerous nonprofit organizations fall under the 501(c)(3) and 501(c)(4) regulations, there are twenty-seven other regulations under Section 501 of the IRS tax code.
For a full listing of all twenty-nine types of nonprofit organizations under the IRS tax code, visit Charity Navigator’s website. To help your organization or an organization you know, reference the IRSs’ document, titled, “Tax-Exempt Status for Your Organization.”