Reply #12: Legally, non-profits don't have to be charitable. [View All]

A lot of people have a misunderstanding about what it takes to have a non-profit. For example, many homeowners associations are non-profits. Why? Because the money they collect is re-invested into common property held by all of the members. Since nobody is pocketing any of the money or making any profit off the enterprise, the government doesn't tax it. Unions are also organized as nonprofits, even though they often have paid employees, because the goal of the organization is to help its members and not benefit an "owner". Churches are often seen the same way...donations to the church are made to support an organization the donors are members of. Nobody is "profitting", so nothing is taxed.

Generally speaking, there are two kinds of non-profits. Public Benefit nonprofits, which are usually charitable and support their communities, and Mutual Benefit nonprofits, which aren't charitable to the community, but which are formed to pool assets and benefit those who are members. There are legitimate purposes for both, but only the first has any kind of charitable mandate.

Remember, we don't tax income in this country, we tax PROFIT. A company can do a million in sales (income), but still only have a tiny amount left over when all the bills and payroll are paid (profit). If we taxed the income, we'd put every company in the country out of business, and every employee out of work.

Nonprofits, by definition, don't have any profit to tax. 100% of their income must be either donated (if they're Public Benefit) or invested back into the organization (if they're Mutual Benefit). Since churches are basically Mutual Benefit nonprofits, this is why you see large ornate churches being built...they HAVE to invest that money or they'll become profitable.