The first step to engaging with this course is to have a common understanding of the words used and what the words mean.

Person: Director, board member, or trustee?

While there are clear distinctions in the meaning of the words themselves, for the sake of clarity, this guide uses director, board member, or trustee in the context of a nonprofit board interchangeably, or as the same. The term refers to the people on the governance team of an organization.

Organization: Nonprofit, charity, or 501(c)(3)?

This guide covers a range of organizations serving the public good. To be clear, let’s review the types of organizations that will be discussed.

  • Nonprofit (or nonprofit corporation): An organization created for a public benefit without shareholders or a profit motive. CPAs often call these organizations “Not-for-profits” to underscore that their purpose is something other than profit; a profit can be earned and returned into the organization. Nonprofit status is determined under state law. A nonprofit registers with the Washington State Office of the Secretary of State as a corporation, called “incorporation.”
  • Charitable corporation: A nonprofit may also need to register with the Washington State Office of the Secretary of State as a “Charity” when the organization is asking people for donations to support its charitable purposes. A nonprofit is required to do so if the organization is either raising at least $50,000 in any accounting year or paying someone to do the work of the organization.
  • Tax-exempt organization: A nonprofit corporation can apply for and receive tax-exempt status from the Internal Revenue Service (IRS). Organizing as a nonprofit corporation at the state level does not automatically grant the organization exemption from federal income tax. Tax-exempt status exempts a nonprofit from paying federal corporate income tax and allows contributions given to the organization to be tax deductible to the donors. There are many classifications of tax-exempt organizations, under section 501(c)(3) of the Internal Revenue Code. Federal tax law applies to all 501(c)(3) tax-exempt organizations.
  • IRS: “IRS” stands for the Internal Revenue Service. The IRS is the taxing agency for the United States Federal Government. The IRS is the federal agency that regulates and monitors 501(c)(3) tax-exempt organizations. Section 501(c)(3) of the Internal Revenue Code, is the law that applies to 501(c)(3) tax-exempt organizations.
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