Before yesterday’s class I was always confused about the difference between nonprofits and NGOs . I now do understand NGOs are a kind of nonprofits but not necessary a 501(c) (3) organization. A nonprofit is an organization whose sole purpose for existing is to provide a social good or service  to the community its serves and which no part of the profits its generates is distributed to its members, officials ,shareholders or stakeholders. They are mainly operated to contribute to the public’s benefit.  The type of tax exemption status granted by the internal revenue service mainly helps define the type of nonprofit an organization is.

The reason for the government granting tax exemption status to nonprofits lies mainly in the reasons that lead to the formation of nonprofits. Most nonprofits are set up to provide a public need that is not currently being addressed or adequately being addressed by government. It is in the best interest of government to encourage and provide an enabling environment for nonprofits to thrive. The granting of tax exemptions to nonprofits eases the financial burdens on these organizations and gives them a better chance of fulfilling their goal. Nonprofits relieve government’s burden, they provide services which in their absence the government will have to offer. Government receives a direct benefit from the activities of nonprofits hence its rational for granting exemption.

Taxing nonprofits will be counterproductive as taking funds from then will lead to a bigger burdening on government. A research by baker strategy shows that 1 in 10 people are employed by nonprofits in the US and they account for approximately 5.5% of the nation’s GDP. The social, economic, environmental political and religious benefits the nation receives from theses nonprofits are so huge it is in the governments best interest to provide them some relief through tax exemption.