In my last post, I gave an overview of the basic state and federal government requirements that exist for nonprofits in Washington State. We’ve heard from member organizations that they aren’t sure about their organization’s nonprofit status and some of our member groups have lost their 501(c)(3) status from the Internal Revenue Service, so we wanted to give you an introduction and overview on the urgent issue, but we didn’t cover why it’s important for your organizations to be a nonprofit and what the benefits are.
Washington Youth Soccer is a nonprofit corporation, and more specifically, a 501(c)(3) nonprofit corporation. The 501(c)(3) refers to the IRS Code we fall under; it categorizes us as a public charity and grants us exemption from federal income taxes on incomes generated from activities related to our mission. Our nonprofit corporation status comes from the State of Washington, specifically through the Washington Secretary of State’s Corporations Division.
Our Member Associations and Districts are required to be tax-exempt nonprofit corporations through WA Youth Soccer bylaws, and some of our Associations require their clubs to be nonprofits as well. Why are we all nonprofits? Nonprofits are businesses formed to achieve a specific goal or support an ideal, as opposed to existing to profit monetarily from the organization. In other words, nonprofits exist to serve the mission where for-profit organizations exist to generate revenue for shareholders. As youth soccer organizations, we exist to organize soccer for youth and support healthy lifestyles, character building, and a love of the game. By being a nonprofit, youth soccer organizations are able to pursue their mission without having to sacrifice ideals for profit and are able to reap many benefits from local, state, and federal governments.
Being a recognized nonprofit provides many benefits in return for the value provided back to the community, and governments reward these contributions to society by offering tax exemptions and other protections to nonprofits. The idea is that by spending less on taxes at the local, state, and federal level, nonprofit organizations will be able to devote more of their resources towards serving their mission within the community. Special discounts on services, property tax exemptions, and nonprofit US postage rates are other types of benefits nonprofits can receive.
Nonprofit status can also open up opportunities for funding from the government, private foundations, and individuals; donations to your organization can become tax-deductible to the donor, which can be more effective in encouraging reinvestment in the community. For example, The Seattle Foundation launched a major philanthropy campaign this June called GiveBIG, where donations to hundreds of recognized nonprofit organizations in King County given on June 23 were matched from the Seattle Foundation’s funds and sponsors, generating more than $3.5 million dollars in donations in less than 24 hours.
Depending on the type of business structure, nonprofits can reap some of the benefits of being a traditional business at the same time as benefiting from being a nonprofit. Nonprofit corporations (like WA Youth Soccer) provide personal liability protection for directors and members of the nonprofit similar to a for-profit corporation, with some exceptions (Directors & Officers insurance is still a necessity for your board members to protect against other possible liabilities). If your nonprofit is not currently recognized as a nonprofit corporation, you may be leaving your board of directors, the membership, and the nonprofit organization open to liability for unpaid taxes or lawsuits.
There are other types of nonprofit organizations (private foundations) but because our organizations derive most income from membership dues (player fees), our Clubs and Associations would generally be considered public charities and therefore a nonprofit corporation is the most appropriate business structure in Washington State for your organization. For the protection of the Districts and Associations, as well as the volunteers that serve them and the trust of the public, WA Youth Soccer requires member Districts and Associations to be nonprofit corporations.
A major difference between a nonprofit and a for-profit corporation is the purpose behind the business. The mission of a nonprofit corporation creates a strong identity for the organization and can keep focus on core goals in a way that for-profit corporations may be tempted (or forced) to ignore in the interest of profits. This mission and tax-exempt status also mean that any profits that the nonprofit does achieve cannot be used to issue dividends to directors; income that is not related to the core mission of the business (unrelated business income) is no longer tax-exempt; and assets of the organization must be used to accomplish the goals of the organization. Political activities in nonprofits are also highly regulated and certain political activities can result in nonprofit status being revoked.
Understanding the importance of nonprofit status and keeping your organization’s status current on all requirements is the fundamental building block of a great Club, Association, or District. Ensuring a sound organization through fulfilled legal and business requirements will create the foundation for the organization to develop players, coaches, and volunteers for generations to come.
Can you think of any other benefits of being a nonprofit?