Non-profit? Charity? What’s the difference?
By Walter Boomsma
207 343-1842
Communications Director
With the disclaimer that I’m not a tax expert, I’m pleased to offer some general information regarding nonprofits, charities, and 501(c)3 status in response to a few recent questions. These are distinctions you need to understand, how they apply to the Grange, and here’s why creating your own foundation probably isn’t the simple solution you might imagine.
I’m also president of a Massachusetts-based nonprofit organization (not affiliated with the Grange) that is a 501(c)(3) charitable foundation. I have some experience and familiarity with the topic.
Frankly, this topic gets complicated quickly. We start with some vocabulary. A nonprofit is not the same as a 501(c)(3) charity. All 501(c)(3) charities are nonprofits, but not all nonprofits are charities. Nonprofits also include social clubs, trade associations, and chambers of commerce.
Nonprofits are broad legal entities that pursue a mission without distributing profits. They are created under state law. The Grange is a nonprofit, but it does not qualify for 501(c) (3) status.
501(c)(3) status may be granted to charities by the IRS at the federal level. It means the organization is free (exempt) from paying federal income taxes. People who give money to these organizations can deduct those gifts from their own taxes. (There are limitations.)
An organization must meet strict requirements to be granted 501(c)(3) status. One important requirement is that the organization’s mission must be primarily charitable. Trying to change laws (lobbying) cannot be a main part of what the group does. Given the Grange’s legislative efforts, we do not meet the requirements.
Because we do often engage in charitable work, National Grange and some state Granges have established organizations that are separate and distinct from the Grange itself. The Maine Grange Foundation was set up primarily to allow for grants and tax-deductible donations. Both the Maine State Grange and National Grange Foundations allow for certain “pass-through” donations.
In other words, if someone wanted to donate money to a subordinate Grange in Maine, they might be able to donate to the Maine Grange Foundation (MGF). Because the MGF is a 501(c)(3) charity, the donor would be eligible for a tax deduction, and the MGF would pass the money along to the subordinate Grange.
Similarly, if a subordinate Grange learned of a grant that would help preserve its hall or certain programs, it might discover that eligibility requires 501(c)(3) nonprofit status. In that case, the subordinate Grange might be able to apply using the MGF as the recipient.
A question that often arises is “Would it make sense for our subordinate Grange to follow the example of national and state by setting up a separate foundation or organization?” The answer requires understanding the requirements. There is considerable paperwork, including filing fees and accounting costs. In addition, annual fees, including required audits, mean the idea is usually not practical or cost-effective for a single subordinate Grange.
If you are interested in exploring this further, some resources follow.
Resources Specific to Maine
Maine Philanthropy Center (MPC) is a membership organization for funders, nonprofits, and consultants that works to make philanthropy more effective and equitable by building relationships, providing valuable tools and resources, and creating opportunities to learn and move our sector forward.
Maine Association of Nonprofits (MANP) is a primary statewide network for the sector. They offer startup guides, toolkits, training webinars, and a business directory to find local attorneys and consultants specializing in tax-exempt
A somewhat dated video explores the creation of The Maine Grange Foundation (a 501(c)(3)) and how subordinate/community Granges can use it. Unfortunately, the Amazon Smiles program has been discontinued, but the included conversation about fundraising should be interesting!
The Foundation Group
Foundation Group provides nationwide nonprofit services ranging from starting a nonprofit to ensuring compliance with IRS and state regulations. Specific resources within the group include:
- What is a 501(c)3? is an excellent article by the Foundation Group that overviews the various types of charitable organizations. It is extremely thorough but also an easy read.
- Caroline Kleabean is a good starting contact at the Foundation Group. Her direct line is 407 274-9227.