Every industry is fraught with jargon that can make it difficult to navigate different components of this. We see this in the nonprofit sector – and here at FLIA we are guilty of not defining our terms as well! So, we wanted to start an ongoing and adapting glossary of different terms you might see while navigating the nonprofit sector or our website. Each of these explanations are a basic overview and we will include additional resources if you want to dive into more information on that topic.

Nonprofit: An organization that is not conducted primarily to make a profit

In order to be a nonprofit, one must be a tax-exempt organization that is defined in different sections of tax-code. At the core of these different tax-exempt codes, the organizations cannot pay out profits to any private shareholder or individual. Nonprofits can pay individuals reasonable compensation to those providing services, such as employees. A common misperception is that nonprofits cannot have a positive revenue. In fact, nonprofits should try to have a reserve fund to help ensure sustainability.

Tax-exempt Organization: A term used interchangeably with nonprofits and 501(c)3 organizations, this references the IRS code that allows for federal tax exemptions for nonprofits based on IRS approval.

You might see people mention tax-exempt when talking about nonprofits. There are a variety of types of organizations that are tax-exempt, including charitable organizations, churches and religious organizations, private foundations, political organizations, and others. There are different requirements for each of these groups to achieve tax-exempt status. It’s obtained by submitting various forms to demonstrate the organization meets these requirements. For the sake of this, we’ll focus on charitable organizations. If the organization meets the IRS requirements to be tax-exempt, the organization is exempt from federal income taxation. In addition, charitable contributions made to some of those organizations by individuals and corporations are tax-deductible.

501(c)3 Organizations: 501(c)3 is an IRS Code that an organization can achieve after meeting specific requirements that allows for federal tax exemption that also allows for tax deductibility of donations. (You should consult a tax advisor concerning the deductibility of a donation.)

There are 29 different types of 501(c) organizations that are included in the US IRS Code (501(c)1 – (501(c)29). In order to obtain a 501(c)3 determination, organizations must submit specific forms to the IRS to receive 501(c)3 status. Additionally, organizations must submit annual forms to maintain their 501(c)3 status. A unique component of 501(c)3 organizations is the tax deductibility of donations.

Logic Model: “A logic model is a systematic and visual way to present and share your understanding of the relationship among resources you have to operate your program, the activities you plan to do, and the changes or results you hope to see” – W.K. Kellogg Foundation

Completing a logic model can help you gain a greater understanding of how the different components of your organization works to achieve your mission. It can help you identify the key components to share with external stakeholders or potential funders. No logic model will be the same, but below is a basic format with an explanation of each section.

Inputs — Resources needed to be successful

Outcomes (Short-Term) — What will people be affected immediately by the program or organization’s activities

Outcomes (Mid-Term) — Change in
attitudes, behaviors, skills, etc over 1-3 years

Outcomes (Long-Term) — Change over 4-7 years Systematic social changes beyond program participants

Theory of Change: Explains the assumptions of why desired outputs and outcomes are expected to happen within the context of a program.

Theory of change and logic models are linked together. A logic model demonstrates the order in which activities happen: inputs à activities à outputs à outcomes. However, it’s missing a way to demonstrate how they are linked together along with the assumptions that would explain how certain activities lead to specific outputs and outcomes.

Social Sector: The work industry that includes a variety of different organizations working towards advancing social justice.

There are different sectors of work industries such as private and public sector. The social sector is often used to describe the sector that includes nonprofits, benefit corporations, social enterprises and other entities that work towards advancing human dignity and social justice. FLIA uses “social sector” to encompass the variety of different career paths fellows can take after the fellowship beyond working solely with a nonprofit.

Matching Donation: This is a charitable donation that an individual or corporation matches another individual’s donation to a nonprofit organization.

Often, a nonprofit communicates with their board or high-dollar donors in advance of a fundraising push to ask them to pledge a certain amount with the understanding that a large matching donation motivates smaller dollar donors with a goal. Additionally, some employers will match donations their employees make to charitable organizations up to a certain amount.

Earned Income:

This is a fundraising option for nonprofits that involves providing services for a fee or a mission-related sale. Examples include Girl Scouts cookies or a nonprofit providing training based on their expertise.

Fiscal Sponsorship: A way to obtain charitable funding that is an alternative to starting a nonprofit.

A fiscal sponsorship is a contractual relationship between a tax-exempt organization and a person, group or business advancing charitable activities. The donations are provided to the tax-exempt fiscal sponsor who distributes the funds to the intended person, group or business.