Can a Nonprofit Make a Profit?
This is a transcript of a podcast posted September 30, 2006.
 We’re speaking with Anthony Mancuso, an expert on corporations, business forms, and nonprofits, and the author of How to Form a Nonprofit Corporation. We’re going to speak with Tony today about the ability of a nonprofit corporation to earn income.
NOLO: Tony, most people understand that nonprofits get special tax breaks, but one thing that’s not clear about nonprofits is whether they can actually make a profit. Perhaps you can start out by defining the word “profit,” and then explaining whether a nonprofit corporation can actually make a profit.
TONY MANCUSO: Well, it’s interesting, because the common meaning of profit is basically that you take in more than you spend, and you end up having a margin or a profit related to your activities -- but that isn’t really what it is meant under the nonprofit statues.
Basically, [the IRS doesn't] want you to be a commercial profit-making business; they don’t want the end that you’re trying to achieve to be the making of money. So, it’s not really in an accounting sense, it’s more of a common sense definition that has to do with your motives, your reasons for operating a nonprofit. They don’t want a substantial purpose to be simply to make money. It’s okay to make money, but they don’t want that to be your overriding interest, so it’s rather fuzzy and vague -- the standard -- but that’s really why they look very closely at your operations when you apply for tax exemption; they want to see your overall purposes of your program.
If [the IRS feels], for instance, that you’re going into a publishing business simply to sell books to make money and not for any other reason, they’ll say, “Well, you’re a profit-making business; you really don’t qualify as a 501(c)3 educational nonprofit.” On the other hand, if you’re selling books that do the public good, that are clearly focused on benefiting the public and educating them in a certain way, then you can qualify, and you can make money from your sales.
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