Question

You are trying to decide if an entity you are reviewing is a government or a not-for-profit. Which of the following would indicate it is a government rather than a not-for-profit entity?

1) It has the power to tax
2) It operates for the benefit of the public
3) It is exempt from income taxes
4) It is governed by a board of directors

Answer 1

1) It has the power to tax. 2) It operates for the benefit of the public. An entity is likely a government if it has the power to tax and operates for the benefit of the public. Not-for-profit organizations are not able to tax and are usually governed by a board of directors.

Step-by-step explanation:

To determine if an entity is a government or a not-for-profit, you should look for certain indications. One key indication that it is a government is if it has the power to tax. Governments have the authority to levy taxes on individuals and businesses to generate revenue. Another indication is if the entity operates for the benefit of the public. Governments exist to serve and provide services to the public. On the other hand, not-for-profit organizations also serve the public, but they do not have the power to tax. Additionally, they are usually governed by a board of directors rather than a government body. Finally, while not-for-profit organizations are exempt from income taxes, governments are not necessarily exempt.