Nonprofit Glossary
Clear, practical definitions of essential nonprofit terms—from 501(c)(3) status to bylaws, Form 990, fiscal sponsorship, and more. A reference guide for nonprofit founders and leaders.
5
501(c)(3)
The federal tax-exempt status granted by the IRS to nonprofit organizations formed for charitable, educational, religious, scientific, or social purposes. Organizations with 501(c)(3) status are exempt from federal income tax and donors can claim charitable deductions for contributions.
501(c)(4)
A tax-exempt status for social welfare organizations, civic leagues, and similar groups. Unlike 501(c)(3) organizations, 501(c)(4)s cannot accept tax-deductible donations but have more flexibility in lobbying and political activities.
A
Articles of Incorporation
The foundational legal document filed with your state's Secretary of State that officially creates a nonprofit corporation. It includes basic information like the organization's name, purpose, registered agent, and statement of its nonprofit status.
B
Board of Directors
The governing body of a nonprofit corporation responsible for strategic direction, policy-making, financial oversight, and fiduciary duty. Most states require at least 3 board members for nonprofit incorporation.
Bylaws
The internal rules that govern how a nonprofit operates, including board meeting procedures, officer duties, member voting rights, conflict resolution, and amendment procedures. Bylaws must comply with state law but provide flexibility in organizational structure.
C
Charitable Solicitation
Any request for donations, grants, or contributions from the public. Many states require nonprofits to register before soliciting donations within their borders. Solicitation laws vary significantly by state.
Compliance
The ongoing process of meeting legal and regulatory requirements for nonprofits, including annual filings, financial record-keeping, governance standards, state registrations, and tax obligations. Compliance varies by state and organization type.
Conflict of Interest Policy
A written policy requiring board members and staff to disclose financial interests that could conflict with organizational decisions. The policy should outline procedures for disclosure, recusal from voting, and managing potential conflicts.
D
Dissolution Clause
A provision in a nonprofit's Articles of Incorporation or bylaws that specifies what happens to assets if the organization dissolves. Most states require that assets go to another nonprofit rather than to individuals.
Donor-Advised Fund
A charitable giving vehicle that allows donors to make irrevocable contributions, receive immediate tax deductions, and recommend how the funds are distributed to nonprofits over time. DAFs are sponsored by supporting organizations or community foundations.
E
EIN (Employer Identification Number)
A nine-digit federal tax identification number issued by the IRS. All nonprofits need an EIN to open a bank account, file taxes, and hire employees. It's obtained by filing Form SS-4 with the IRS.
Exempt Purpose
The charitable, educational, religious, scientific, or social mission for which a nonprofit is organized. The exempt purpose must be clearly stated in the Articles of Incorporation and all activities must further this purpose to maintain tax-exempt status.
F
Fiduciary Duty
The legal obligation of board members to act in the best interests of the organization, manage resources responsibly, avoid conflicts of interest, and exercise reasonable care. This is a core responsibility of nonprofit governance.
Fiscal Sponsorship
An arrangement where an established 501(c)(3) organization provides legal and tax-exempt status to a project or program that doesn't have its own nonprofit incorporation. The sponsor manages finances and tax filings while the project maintains operational control.
Form 990
The annual information return that most tax-exempt organizations file with the IRS. Form 990 reports financial activities, governance, compensation, and program accomplishments. It's required for organizations with gross receipts above a specific threshold.
Form 990-EZ
A simplified version of Form 990 for smaller nonprofits with gross receipts below a specified amount. Form 990-EZ requires less detailed reporting than the full Form 990 but still covers basic financial and governance information.
Form 990-N
An electronic notice filed by nonprofits with gross receipts of $50,000 or less. Also called the 'e-postcard,' Form 990-N is the simplest IRS filing requirement and can be completed online in about 15 minutes.
Form 1023
The full application for 501(c)(3) tax exemption filed with the IRS. Form 1023 requires detailed information about the organization's structure, mission, activities, and financial projections. Processing typically takes 2-4 weeks.
Form 1023-EZ
A streamlined application for 501(c)(3) status available to eligible nonprofits with projected annual revenue under $50,000. Form 1023-EZ is faster and cheaper than the full Form 1023 but has stricter eligibility requirements.
Fundraising
The strategic process of identifying, cultivating, and soliciting financial support from donors, foundations, and other sources. Effective fundraising requires documented donor stewardship, clear communication of impact, and compliance with solicitation laws.
G
Gift Acknowledgment
A written statement thanking donors for their contribution and confirming the amount received. Gift acknowledgments serve as documentation for donor tax deductions and are required by the IRS for donations over $250.
Good Standing
A status indicating that a nonprofit has complied with all state filing, registration, and fee requirements. Organizations in good standing have the right to conduct business, sue or be sued, and maintain their incorporation status.
Governance
The system and processes through which a nonprofit makes decisions, manages resources, and pursues its mission. Good governance includes clear bylaws, effective board oversight, transparent financial management, and accountability to stakeholders.
Grant
A financial award given by a foundation, government agency, corporation, or individual to support specific programs or projects. Grants are typically competitive, project-based, and require reporting on how funds were used and outcomes achieved.
Gross Receipts
The total amount of revenue a nonprofit receives from all sources, including donations, grants, program revenue, membership fees, and investment income—before any expenses are deducted. Gross receipts thresholds determine IRS filing requirements.
I
Incorporation
The legal process of forming a nonprofit corporation by filing Articles of Incorporation with the state. Incorporation creates a separate legal entity, provides liability protection to board members, and is typically the first step in forming a nonprofit.
IRS Determination Letter
An official letter from the IRS confirming that an organization qualifies for 501(c)(3) tax-exempt status. The determination letter is issued after Form 1023 or 1023-EZ is approved and is required to solicit tax-deductible donations and apply for grants.
M
Mission Statement
A concise statement describing the nonprofit's purpose, who it serves, and the change it seeks to create. A strong mission statement guides organizational decisions, inspires donors, and communicates value to stakeholders.
N
Nonprofit Corporation
A legal entity organized and chartered by the state for collective, nonprofit purposes. Nonprofit corporations are separate from their founders, have perpetual existence, and operate under state law and their bylaws rather than for private gain.
O
Operating Budget
A detailed plan of projected revenues and expenses for a specific period, typically one fiscal year. An operating budget serves as a financial roadmap for program delivery, fundraising targets, and fiscal management.
P
Private Foundation
A nonprofit organization created by and funded primarily by a single individual, family, or corporation. Private foundations are required to distribute at least 5% of assets annually, file Form 990-PF, and face stricter regulations than public charities.
Program Service Revenue
Income earned by a nonprofit directly from providing its charitable services or products—such as fees from a nonprofit school's tuition, a health clinic's services, or a cultural organization's ticket sales. Program revenue strengthens sustainability and funder confidence.
Public Charity
A nonprofit organization that qualifies for 501(c)(3) status and derives support from the general public rather than a limited group. Public charities can accept tax-deductible donations and generally face fewer restrictions than private foundations.
Purpose Clause
A statement in the Articles of Incorporation that describes the nonprofit's exempt purpose(s) in language that complies with IRS requirements. The purpose clause must clearly articulate charitable, educational, religious, scientific, or social goals.
R
Registered Agent
An individual or business entity designated to receive legal documents and official correspondence on behalf of a nonprofit corporation. Most states require a registered agent with a physical address in the state where the nonprofit is incorporated.
S
Secretary of State
The state government office responsible for filing and maintaining corporate records, including nonprofit incorporations. Articles of Incorporation, amendments, and annual reports are filed with the Secretary of State in the state of incorporation.
State Tax Exemption
Exemption from state-level income tax, sales tax, and/or property tax granted to qualified nonprofits. State tax exemption requirements vary by state and are separate from federal 501(c)(3) status, though most states follow federal classifications.
T
Tax-Exempt Status
The official recognition that a nonprofit organization does not owe federal income tax. Tax-exempt status is granted by the IRS through Form 1023 or 1023-EZ approval and requires ongoing compliance with federal and state regulations.
U
Unrelated Business Income (UBI)
Revenue earned by a nonprofit from activities unrelated to its tax-exempt purpose. If UBI exceeds $1,000, the nonprofit must file Form 990-T and may owe federal income tax on that portion. Unrelated business activities must not become the nonprofit's primary purpose.
W
Whistleblower Policy
A written policy that protects employees and volunteers who report suspected illegal, unethical, or fraudulent activities. Whistleblower policies encourage internal accountability, protect reporters from retaliation, and are increasingly expected by donors and grantmakers.
Still Have Questions?
This glossary covers core nonprofit concepts, but every organization's situation is unique. Whether you're forming a nonprofit, filing taxes, or managing compliance, our team is here to help clarify complex terms and guide you through the process.