The world of the nonprofit organization is very complicated. Serving the community on usually very limited funding is quite enough, but the current Internal Revenue Code compounds this complexity with extensive and confusing regulations. The missions of these nonprofits can suffer as a result. The FairTax alleviates this burden.
Under the FairTax, the 34 pages of code that currently comprise Section 501 of the Internal Revenue Code that defines tax exempt organizations is reduced to five sentences with a narrower, simpler definition. Nonprofits are no longer classified under one of 28 types of tax-exempt entities (under Section 501(c)) with different rules for each. A qualified nonprofit organization is a qualified nonprofit organization, and the rules are the same for all.
Donations to any nonprofit are tax exempt under the FairTax; whereas they are only exempt (deductible) when given to 501(c)(3) charitable, religious and educational organizations under the current laws. Donations to a 501(c)(4), such as FairTax.org, or other 501(c) nonprofit organizations are not deductible under current law.
Another very important change for nonprofits is that the FairTax repeals prohibitions on political activity. The nonprofit organization will no longer have to go through the significant trouble of setting up a sister organization to provide the lobbying efforts needed to further the company’s mission. The nonprofit will no longer have to worry about losing its tax status, and therefore much of its funding opportunity, if it chooses to become politically involved or support an organization that is, such as a business association.
The world of the nonprofit organization is very complicated, and will probably always be. There will always be funding concerns. There will always be need to figure out how to maximize resources to best fulfill the organizations mission. But under the FairTax, the Internal Revenue Code is no longer adding to the complexity. Nonprofit organizations and their benefactors will be free to focus on serving their communities however they deem most appropriate.
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