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May group falsely claim nonprofit status?

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May group falsely claim nonprofit status?

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 they 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.

Wednesday, April 8, 2009

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