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Insights from Karen Climer about fundraising and nonprofit organizations

Nonprofit Organization Vs. Not-For-Profit Organization — Which One Are You?

February 27th, 2014 by Karen Climer

Yesterday, I attended two presentations by two different local funders.  Both of these funders repeatedly used the phrase not-for-profit organization.  I cringe whenever I hear that phrase.  I was tempted to announce, “Everyone at this lecture represents a nonprofit organization, not a not-for-profit organization!!!”  I didn’t do that for two reasons.  First, that sentence is awkward because of all the nots.  Second, well, there is more than that sentence that would have made that whole situation a wee bit awkward.  

Most people in our field use the terms nonprofit and not-for-profit interchangeably.  The IRS actually makes a distinction between these two terms.  Nonprofit refers to an organization established for means other than profit-making.  Be careful here … Nonprofit is not a synonym for charitable.  There are 27 different 501(c) classifications.  The third one, 501(c)(3) is the charitable one.  Organizations like credit unions, labor unions, fraternities, social clubs, mutual insurance companies, even cemetery companies are tax-exempt, 501(c) organizations.

Not-for-profit is the term the IRS uses to describe a hobby.  If you have a hobby, you have to pay taxes on the income, but you can’t deduct losses greater than the income because it’s only a hobby.  It is not-for-profit.  

That’s why I cringe when I hear a funder or someone else in the sector refer to a not-for-profit.  When someone calls the local food bank a not-for-profit, this puts it on par with the local knitting club.  There’s nothing wrong with the knitting club.  It is a not-for-profit organization.  The food bank is a nonprofit organization.

I realize that not everyone is as anal about this distinction than I am, so I’d love to hear your thoughts.  Many people prefer one term over the other because they think it sounds better or more legitimate.  Which term do you use for your organization?  Feel free to comment below.

Posted in Nonprofit issues

One Response

  1. Lauren

    This post is one that I’ve never forgotten and I often remind people of this very thing. In fact, I shared it with another NONPROFIT today who was calling themselves a not-for-profit. 🙂

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