Elements classifying a nonprofit organization

Under ‘US Code 26 A (1) F (1) Section 501 (c) (3)’ otherwise known as the “Internal Revenue Code (IRC) of 2007”, classifies the nonprofit organization which is granted with tax exemption provided that incorporation is duly certified by the Securities and Exchange Commission (SEC) and complied with the requirements of the Internal Revenue Service (IRS).

To briefly cite in verbatim, Section 501(c) (3) provision states that nonprofit organization refers to “corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals, and no part of the net earnings of which inures to the benefit of any private shareholder or individual” (IRS, 2009).

In ‘Defining and Classifying the Nonprofit Sector’ by Paul B. Reed and Valerie J. Howe (1999), it cited that nonprofit organization possesses versatility and multiplicity, wherein having the catalytic role in community and society, such as to provide voluntary services, ventilate advocacy on welfare issues and establish mediation in delivering services to legitimate beneficiaries.

The fundamental element or characteristics express “symbolical function” of voluntary service without gains of profit that can be benefited by a group of individuals or a stakeholder, in which the performance categorizes for being charitable, collaborate socio-economic benefits, socially-idealistic, value-oriented, people-led and people-driven (Reed & Howe, 1999). Significant findings reveal budget allocations of nonprofit organizations coming from co-managed project budget subsidies ranging from other private donors and government agencies that are in partnership with the nonprofit organizations in implementing a project.

This type of government collaboration with nonprofit organizations is a typical “project intervention” through a joint undertaking in the community, in which the delivery of community service is primarily managed by the nonprofit organization, like the preliminary organizing and mobilization of cooperatives that shall be funded by the government or a private entity or industry partner (Reed & Howe, 1999). Over the years, governmental and corporate-private organizations and the industrial sector utilize the nonprofit organizations in establishing production channels in rural communities, specifically in developing Asian countries.

The study on the patterns of partnership have found that nonprofit organizations effectively achieves their “missionary role” in dealing with people in remote communities (Rekart, 1992; in Reed & Howe, 1999), wherein the organizing of agricultural producers contributes to the production of basic farm commodities and at the same time generates employment in the rural areas (Lohmann, 1992; in Reed & Howe, 1999).

Reed and Howe (1999) implied that nonprofit organizations can be fully tapped by governmental organizations as “service delivery channels”, having categorized and described as a “voluntary entity intervention” that can significantly managed the inability of the state to reaching out community services. As cited, the social assimilation of nonprofit organizations on the activities of the state establishes and creates the “mediating strictures” in public administration where the gaps of social management are independently substituted by volunteerism (Reed & Howe, 1999).

It can be considered that the tax exemption on “volunteerism” of nonprofit organization is justified by nature of its community work. The community work of the nonprofit organization is not relatively duplicating the service delivery of the government, but instead being conciliated at the community level. Likewise, organizing the community in support of generating productions contributes to the requirement of industries and recast the economic sources of the state.