Is it illegal for a group to claim it is a nonprofit when it has no nonprofit status?
What do you mean when you say nonprofit status? There are a lot of organizations that are nonprofit under state law, which means that can’t pay dividends to owners or members. When we talk about nonprofit status, we tend to mean tax-exempt and charitable. But there are a few nonprofits that are not tax-exempt and lots of tax-exempt nonprofits that are not charities. (See Ready Reference Page: “What Do We Mean When We Say Nonprofit?”)
A statement that an organization is a nonprofit could be accurate even if it is not a charity. It would generally be illegal under state charitable solicitation registration laws or other state laws for an organization to represent or imply that it is a charity to solicit charitable contributions when it is not recognized as a charity. An organization that claimed it was nonprofit and is not nonprofit under state law would open itself to claims of misrepresentation and fraud if a third party detrimentally relied on that representation.
April 8, 2009
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