In the United States, 26 different types of organizations are
identified as worthy of tax exemption, ranging from business associations through
charitable organizations and social clubs. Behind these 26 categories, however, lie
five critical features that all these entities share. To be considered part of the
nonprofit sector, therefore, an entity must be:
- organizational, i.e., an institution with some meaningful structure and permanence;
- nongovernmental, i.e., not part of the apparatus of government;
- non-profit-distributing, i.e., not permitted to distribute profits to its owners or directors, but rather required to plow them back into the objectives of the organization;
- self-governing, i.e., not controlled by some entity outside the organization; and
- supportive of some public purpose.
While all organizations that meet these five criteria are formally
part of the nonprofit sector in the United States, an important distinction exists
between two broad categories of these organizations. The first are primarily
member-serving organizations. While serving some public purpose, these organizations
meet the interests, needs and desires of the members of the organization. Included here
are social clubs, business associations, labor unions, mutual benefit organizations of
various sorts and political parties.
The second group of nonprofit organizations are primarily
public-serving organizations. These organizations exist exclusively to serve the needs
of a broader public. Included here are a variety of funding intermediaries such as
charitable, grant-making foundations; religious congregations; and a wide range of
educational, scientific, charitable and related service organizations providing
everything from nursing home care to environmental advocacy.
This distinction between member-serving and public-serving
organizations is far from perfect. Nevertheless, it is sufficiently important to find
formal reflection in American law. Thus, public-serving organizations fall into a
special legal category -- Section 501(c)(3) [http://www.access.gpo.gov/uscode/title26/subtitlea_chapter1_subchapterf_parti_.html] of
the U.S. tax code -- that makes them eligible not only for exemption from federal
income taxation and most state and local taxation, but also for tax-deductible gifts
from individuals and corporations, that is, gifts that the individuals and corporations
can deduct from their own income in computing their tax liabilities.
