Defining and describing the nonprofit sector

# Defining and describing the nonprofit sector

**January 13, 2022**

]

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# Plan for today

.box-2.medium.sp-after-half[The universe of nonprofits]

.box-6.medium.sp-after-half[Problems with nonprofits]

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# The universe of nonprofits

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# What are nonprofits?

.box-inv-2.medium[**Corporations**]

.box-inv-2.medium[with **Special Tax Status**]

.box-inv-2.medium[providing a **Public Good**]

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# Confusing names!

.box-inv-2.medium[These are all basically the same thing!]

.box-2.small[Nongovernmental organization (NGO)]

.box-2.small[Third sector]
]

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# Six characteristics of nonprofits

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# Public or mutual benefit

.float-left.center[.box-inv-2.small[Charities]&emsp;.box-inv-2.small[Foundations]]

.box-inv-2.small[Advocacy organizations]

.float-left.center[.box-inv-2.small[Education]&emsp;.box-inv-2.small[Hospitals]]

.box-2.SMALL[Focused on the broader public]
]

.box-inv-2.small[Fraternities and sororities]

.box-inv-2.small[Professional associations]

.float-left.center[.box-inv-2.small[Sports clubs]&emsp;.box-inv-2.small[HOAs]]

.box-2.SMALL[Focused on their members]
]

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# Nonprofits and taxes

.box-inv-2.large[Organizations that focus on the public get special tax privileges]

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# §501(c)

.center[
<figure>
 <img src="img/02/501c3.png" alt="501(c)(3) tax code" title="501(c)(3) tax code" width="80%">
</figure>
]

???

- https://www.law.cornell.edu/uscode/text/26/501
- https://www.govinfo.gov/content/pkg/USCODE-2011-title26/pdf/USCODE-2011-title26-subtitleA-chap1-subchapF-partI-sec501.pdf

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# §501(c)

.center[
<figure>
 <img src="img/02/501c32.png" alt="501(c)(3) tax code" title="501(c)(3) tax code" width="80%">
</figure>
]

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# 501(c) categories you should know

.box-2.smaller[Pages 69–70 in [IRS Publication 557](https://www.irs.gov/pub/irs-pdf/p557.pdf)]

&nbsp;

.float-left.center[
.box-inv-2.less-medium[501(c)(3)]&ensp;.box-inv-2.less-medium[501(c)(4)]&ensp;.box-inv-2.less-medium[501(c)(6)]&ensp;.box-inv-2.less-medium[527]
]

???

There are 29 different types!

See also https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=1559

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# 501(c)(3)

.box-inv-2[Nine official subsectors: [NTEE-CC](https://nccs.urban.org/project/national-taxonomy-exempt-entities-ntee-codes)]

.pull-left[
- Arts, Culture, and Humanities
- Education
- Environment and Animals
- Health
- Human Services
]

.pull-right[
- International, Foreign Affairs
- Public, Societal Benefit
- Religion Related
- Mutual/Membership Benefit
]

???

NTEE-CC codes: https://nccs.urban.org/project/national-taxonomy-exempt-entities-ntee-codes

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# 501(c)(3)

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.box-2.huge[Why care about tax deductions?]

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.box-2.medium[**Jody earns $80,000/year**]

.pull-left[
<table class="table" style="font-size: 35px; margin-left: auto; margin-right: auto;">
 <thead>
 <tr>
 <th style="text-align:left;"> Annual income </th>
 <th style="text-align:left;"> Marginal tax rate </th>
 </tr>
 </thead>
<tbody>
 <tr>
 <td style="text-align:left;"> $0–$10,000 </td>
 <td style="text-align:left;"> 0% </td>
 </tr>
 <tr>
 <td style="text-align:left;"> $10,001–$50,000 </td>
 <td style="text-align:left;"> 10% </td>
 </tr>
 <tr>
 <td style="text-align:left;"> $50,001–$100,000 </td>
 <td style="text-align:left;"> 20% </td>
 </tr>
 <tr>
 <td style="text-align:left;"> $100,001–$300,000 </td>
 <td style="text-align:left;"> 30% </td>
 </tr>
 <tr>
 <td style="text-align:left;"> $300,000+ </td>
 <td style="text-align:left;"> 50% </td>
 </tr>
</tbody>
</table>
]

.box-2.smaller[She pays 10% on the next $40,000 .small[($4,000)]]

.box-2.smaller[She pays 20% on the last $30,000 .small[($6,000)]]

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# 501(c)(3)

???

- LDS church during Prop 8 - counted as insubstantial lobbying
- Lobbying only for ideas, policies; political campaigns are for people
- BYU accidentally promoted Romney during his 2012 campaign—quickly redacted - you can't say anything about specific candidates
- Free speech not an issue - you don't have to be tax exempt - you give up some free speech in exchange for tax exemption

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# 501(c)(4)

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# 501(c)(6)

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# §527

.box-2[.medium[Political parties, campaigns, PACs] .small[ActBlue, EMILY's List, Republican Governors Association, AFL-CIO]]

.box-inv-2[Organization is tax exempt ***only*** for "exempt activity" .small[(Money spent on political activities and lobbying)]]

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# Getting tax exemptions

.box-2[Apply to the IRS at the *federal* level to get tax-exempt status using one of the 501(c) categories (most often 501(c)(3))]

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# Nonprofits vs. foundations

.pull-left.center[
<figure>
 <img src="img/02/care-logo.png" alt="CARE International logo" title="CARE International logo" width="40%">
</figure>
]

.pull-right.center[
<figure>
 <img src="img/02/woodruff-logo.png" alt="Woodruff Foundation logo" title="Woodruff Foundation logo" width="100%">
</figure>
]

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# Nonprofits vs. foundations

.box-2.small[Income from lots of sources]

.box-2.small[Charities must demonstrate "public support" to the IRS .small[(10–33.33%)]]
]

.box-2.small[Income from one .smaller[(or a few)] sources]

.box-2.small[Foundations must pay taxes on investment income]

.box-2.small[Foundations must give away at least 5% of their assets each year]
]

???

By default all nonprofits are private foundations until they prove to the IRS that they count as public charities

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# Problems with nonprofits

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# Issues in the nonprofit sector

.box-inv-6.medium.sp-after-half[Undercompensation, tame programs, and fear of overhead]

.box-inv-6.medium.sp-after-half[Elite control and reputation laundering]

.box-inv-6.medium[Subversion of the public sector]

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# Structural issues with the sector

.center[
<figure>
 <img src="img/02/dan-pallotta-ted.jpg" alt="Dan Pallotta TED talk" title="Dan Pallotta TED talk" width="75%">
</figure>
]

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# Structural issues with the sector

???

1. Compensation - underpaid employees in the sector - easy to take advantage of people - lowest paid sector in business schools

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# Abysmal compensation

.center[
<figure>
 <img src="img/02/pallotta-earnings.jpg" alt="Nonprofit earnings compared to MBA earnings" title="Nonprofit earnings compared to MBA earnings" width="75%">
</figure>
]

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# Structural issues with the sector

???

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# Taming programs to get funding

.pull-left.center[
<figure>
 <img src="img/02/bush-taming-democracy-assistance.jpg" alt="Sarah Bush's The Taming of Democracy Assistance" title="Sarah Bush's The Taming of Democracy Assistance" width="70%">
</figure>
]

.box-6.medium[Mission drift]
]

???

cause switching (that's sometimes okay! March of Dimes)

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# Structural issues with the sector

???

1. Compensation - underpaid employees in the sector - easy to take advantage of people - lowest paid sector in business schools
2. Advertising and marketing - we don't like seeing charities advertise (or spending on overhead in general)
3. Taking risk on new revenue ideas - nonprofits reluctant to do that because of reputational issues
4. Time - Amazon, Uber, Twitter all took years to produce profits - nonprofits can't do that
5. Profit to attract risk capital - venture capitalists won't touch it because they can't get a 10x return

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# Embedded values

.box-inv-6.huge[Don't confuse morality with frugality]

???

Why are these issues? What kind of values are embedded in our perceptions of the nonprofit sector?

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# Elite philanthropy

.pull-left.center[
<figure>
 <img src="img/02/carnegie.jpg" alt="Andrew Carnegie" title="Andrew Carnegie" width="70%">
</figure>
]

]

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.box-6.huge[Why?]

.box-inv-6.large[Why donate all this money? instead of keeping it?]

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.box-6.huge[Modern parallels?]

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# Elite philanthropy gone wrong

.pull-left.center[
<figure>
 <img src="img/02/winners-take-all.jpg" alt="Anand Giridharadas and Winners Take All" title="Anand Giridharadas and Winners Take All" width="70%">
</figure>
]

.box-inv-6.SMALL[Subversion of the public sector]

.box-inv-6.SMALL[Billionaires can use nonprofit work to build reputation]
]

???

Anand Giridharadas: AN-and GEER-da-das

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# Reputation laundering

.center[
<figure>
 <img src="img/02/sacklers.png" alt="Sackler foundations" title="Sackler foundations" width="80%">
</figure>
]

???

https://www.marketwatch.com/story/sackler-family-banned-temporarily-from-putting-their-name-on-buildings-as-part-of-4-5-billion-opioid-settlement-11625857196

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# Reputation (and money?) laundering

.center[
<figure>
 <img src="img/02/wapo-trump.jpg" alt="Trump portrait" title="Trump portrait" width="60%">
</figure>
]

???

https://www.washingtonpost.com/news/post-politics/wp/2016/11/01/this-is-the-portrait-of-himself-that-donald-trump-bought-with-20000-from-his-charity/

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# Reptuation laundering

.center[
<figure>
 <img src="img/02/guardian-greenwashing.jpg" alt="The Guardian on greenwashing" title="The Guardian on greenwashing" width="60%">
</figure>
]
]

.center[
<figure>
 <img src="img/02/vox-pinkwashing.jpg" alt="Vox on pinkwashing" title="Vox on pinkwashing" width="85%">
</figure>
]
]

???

https://www.vox.com/2018/6/25/17476850/pride-month-lgbtq-corporate-explained

https://www.theguardian.com/sustainable-business/2016/aug/20/greenwashing-environmentalism-lies-companies

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# Misuse in other countries

.box-inv-6.sp-after[.medium[GONGOs] .small[Government-operated NGOs]]

.box-inv-6.medium[First Lady NGOs]