What does it mean to be a 501(c)(3) nonprofit organization?

August 13th, 2009 by Grace Meng


The Common Data Project is pleased to announce that we have been officially recognized by the IRS as a 501(c)(3) tax-exempt organization! In other words, your donation to CDP is now tax-deductible, and you can donate to us here.

But what does it really mean to be a nonprofit organization? And what does it mean for us at the Common Data Project?

A nonprofit organization is an organization that is motivated by goals other than the making of a profit. It’s a pretty circular definition, I know. Being a nonprofit doesn’t mean that an organization can’t make money. Yale University, for example, is a nonprofit, and the people who manage its endowment have made it very, very rich. And an organization certainly isn’t a nonprofit just because it offers services for free. Many of Google’s services are free, and it is clearly not a nonprofit.

The definition of the type of nonprofit recognized by the Internal Revenue Service as tax-exempt under Section 501(c)(3) of the Internal Revenue Code is a little more specific. The organization must be organized for one or more tax exempt purposes, which include “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.”

We applied for recognition as an organization with a primarily educational purpose, as we work to change public perception and understanding of privacy issues and how they impact our ability to share information. But the IRS’s definition of a 501(c)(3) tax-exempt organization doesn’t quite encompass who we are and why we are a nonprofit.

First and foremost, the datatrust we envision must have a public-serving mission, rather than a profit-driven motive.

We know that we could be a business that provides information services. We have no illusions that a nonprofit necessarily does more “good” than a business.  But we plan to build a datatrust, a repository for anonymized datasets that are available for useful and innovative applications by the general public.  We are trying to create a completely new model for data collection, where the people who donate data also get the value of data in return.  A datatrust that is built on the goals of sharing, transparency, and accountability cannot accept the donations of people and organizations and then monetize that data for profit.

Of course, it’s not enough to declare that the datatrust will benefit the public, nor is it enough to be recognized as a 501(c)(3) organization by the IRS.

We’ll have to work hard to create a datatrust that everyone can believe in. In the same way museums, public libraries, and even online spaces like Wikipedia imbue its users with a feeling of public sharing and respect, we hope the datatrust will engender a sense of community.

You can read more about our goals here, but ultimately, we hope to have a continuing dialogue with you on our goals and our plans as we keep working to create a trustworthy, transparent datatrust organization.

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One Response to “What does it mean to be a 501(c)(3) nonprofit organization?”

  1. Very well stated! We’ve just achieved our status and I was finding that my explanation to folks wasn’t getting through but after reading this, I think they’ll get it! thanks!!

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