Not-for-Profit Sector & Accounting

Approximately how many NFPs were registered with the IRS in 2016?

Approximately 1.54 million.

How much did the NFP sector contribute to the US economy in 2016, and what percentage of the GDP does that represent?

It contributed $1.05 trillion, which represents 5.6% of the GDP.

In 2018, how much did private giving from individuals, foundations, and businesses total?

It totaled $427.71 billion.

What proportion of the US private workforce is accounted for by the NFP sector, and how many NFP employees were there in 2016?

It accounts for roughly 1 in 10 jobs in the US private workforce, with 12.3 million NFP employees in 2016.

What are two defining features of the NFP sector's role in the U.S. economy?

It is very diverse, consisting of many different kinds of organizations, and it serves an important role by providing critical services that benefit the public.

How do NFP entities differ from for-profit entities regarding contributions?

NFP entities receive contributions from resource providers that do not expect a benefit in return.

What is the primary difference in operational motive between NFPs and for-profit businesses?

NFP entities do not operate to provide goods or services at a profit.

Do NFP entities have ownership interests?

No, NFP entities do not have ownership interests.

What is the primary focus of for-profit businesses compared to NFPs regarding stock prices and revenue?

Businesses focus on maximizing stock prices and can change prices of goods and services to increase revenue. For NFPs, revenue is separate from the goods and services, and donors do not receive those benefits.

Why is identifying customers and owners more difficult for NFPs than for businesses?

While businesses clearly know their customers and owners, NFPs must ask: Are donors the customers or owners? Or is society or its founders?

How do the cash flow patterns of many NFPs differ from standard businesses?

NFPs often see large inflows of donations between Thanksgiving and Christmas and must operate on this funding throughout the following year.

Under which section of the IRS codes do most NFPs qualify for tax-exempt status?

Section 501(c).

What distinguishes 501(c)(3) organizations from other 501(c) organizations?

501(c)(3) organizations are tax-exempt and allow donors to give tax-deductible donations (generally termed "charitable" or "public charity" nonprofits), whereas other 501(c) organizations are tax-exempt but donors cannot deduct donations from federal income taxes.

To which levels of government are NFPs accountable for their legal existence and tax-exempt status?

They are accountable to the state government that grants them legal existence and the federal government that grants tax-exempt status (with churches being an exception).

What is the difference between a Public Charity and a Private Foundation (both are 501(c)(3) organizations)?

Public charities are funded, operated, and monitored by the public at large (at least 1/3 of support is from government or public support). Private foundations receive support from a small number of individuals or corporations, and investment income rather than from the public at large (e.g., the UNA Foundation).

What powers and responsibilities does a state government hold regarding an NFP?

A state has the power to give legal life to an NFP (corporation, LLC, or charitable trust) and the responsibility to represent the public beneficiaries of NFPs.

What types of state and local regulations apply to NFPs?

Applications to operate, incorporation laws (board meetings, bylaws), annual compliance reporting (most require audited annual financial reports when public support exceeds $75k), and special licenses (charitable solicitation, gaming, alcohol, etc.).

What three criteria must be met in the federal "organizational test" for an NFP to gain tax-exempt status?

The articles of incorporation must follow IRC section 501, the organization cannot benefit private interests, and it cannot try to influence legislation.

What federal annual compliance form must most NFPs file with the IRS?

Form 990 (with exceptions for religious and governmental NFPs).

Which standard-setting body governs Nongovernmental NFPs, and what are some examples?

FASB (Financial Accounting Standards Board) governs them. Examples include private universities, healthcare, religious, literary, and service organizations like Harvard and the UNA Foundation.

Which standard-setting body governs Governmental NFPs, and what are some examples?

GASB (Governmental Accounting Standards Board) governs them. Examples include general-purpose entities (states and cities) and special-purpose entities like public universities and hospitals, such as the University of North Alabama.

What characteristics might a Governmental NFP organization possess?

It may administer public affairs (e.g., a municipality), have officers elected or appointed by governmental officials, have the power to enforce a tax, or have the ability to issue tax-exempt debt.

What are the four main categories of nongovernmental NFPs?

Hospitals/healthcare, colleges/universities, voluntary health and welfare organizations (VHWOs), and other nonprofit organizations (ONPOs) like fraternities, sororities, and museums.

How are an NFP's "mission" and "vision" defined?

Mission communicates the NFP's purpose and why it exists. Vision is a mental image of what successful attainment of the mission looks like.

Why are volunteers and the board of directors critical to NFPs?

Because an NFP's organizational structure and governance are heavily focused on fulfilling its mission.