Not for profit sector are the organization which are being operated privately for the welfare of the community. Most of the commercial organizations are inherently aiming for profit maximization of shareholders. Not for profit organizations are basically aiming to achieve a certain objective of welfare in a certain limited budget.
Not for profit are tax exempt under internal revenue code section 501 (C) (3) in United States of America. Reason for their exemption is the production of public benefit and social welfare. There are more than 1.5 million nonprofit organizations registered.
Reporting Compliance on Not For Profit Sector:
Since not for profit organization are being run on the donations of the public or individuals. Not for profit organizations are required to submit their financial services statements and other information including directors’ salary, to IRS.
IRS and not for profit organization are obligated to provide financial information for anyone who requires it. NOPs have to allow public inspection of their records on regular basis
Additionally individual can write a letter to IRS and receive the required information through email.
Apart from financial reporting, performance of NPO has to be measured regularly to ensure that the donations are being used in the right areas. Following are the challenges in performance management of NPOs:
- Though the data availability in USA pertaining to the NPOs are phenomenal but there has always been a limitation regarding the remote area NPOs data collection. Performance management can only be conducted if information about the KPIs are available.
- Primary objective of every NPO is a social welfare target. Social welfare is it-self in most cases difficult to measure to determine the successful of an NPO. Even if the social welfare is not entirely implemented, the measurement of degree of success of any welfare project is difficult to determine as well.
Taxation aspect about Not for profit organizations are pretty straight forward. As far as federal taxes and income tax is concerned, not for profit organization are exempt if following criteria is met.
Organization is being exclusively operated for the charitable, religious, or public safety purpose.
If the organization indulges in an activity which is not related with the charitable cause it is deemed to do, income tax on that activity will be due to the tax regulatory authorities.
Not for profit organizations are also exempt from sales and property tax. As far as employee taxes are concerned, not for profit sector is liable to pay due share of taxes on behalf of their employees.
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Need of Not For Profit Organization
NPOs are designed to provide welfare and serve a charitable cause for the community. This is basically a responsibility of the government. In modern economics, government is already overburdened with various issues and NPOs are targeting the welfare gap demands and making our lives betters.