The IRS approved more than 50,000 new organizations as 501c3 nonprofits in 2008. It has approved more than 50,000 organizations for every year of the past decade, leading to a massive growth in the nonprofit sector. The number of 501c3s has grown by more than 50% in just a decade. What kinds of organizations are most often approved? How strict or lax is the approval process?
Stanford’s Center on Philanthropy and Civil Society (PACS) released a new report that examines the approval of nonprofit status by the IRS. The report is based on research I conducted over the summer with two terrific students, Lacey Dorn and Stefanie Sutton.
We found that the approval rate in 2008 was above 98%. And we found that some of the organizations that had been approved are truly bizarre.
The report is entirely descriptive, but the findings raise some important questions, I think, about the nonprofit sector in the United States:
1. Do we need 50,000 new 501c3s every year? Do we have too many nonprofits?
2. Need an organization demonstrate anything beyond the so-called “non-distribution constraint” — no profits to shareholders — in order to obtain nonprofit status? Does the charitable sector not have any substantive content to it beyond not-for-profit?
3. Have Americans conflated the undeniable importance of freedom of association with an entitlement to tax benefits?
4. Is the IRS the best agency to issue determinations of nonprofit status?
The report can be downloaded from the PACS Center website. It can also be downloaded by clicking here:
For an interesting take on an alternative model, check out PACS’ visiting scholar Lucy Bernholz’s recent post on her terrific blog.
Tagged: 501c3, Anything Goes, nonprofit, PACS
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In response the recent NYTimes article (12.07.09Charities Rise, Costing U.S. Billions in Tax Breaks) about this study….I wrote a letter to the editor:
At a time when government is doing less than ever, especially in states like California, it is a great disservice to say on the front page that “nonprofits are skillfully exploiting the tax code…” and to bury on the inside “while no one contends that even a small portion of the new charities are fraudulent…” Better to explore all the things that nonprofits now have to do without the assistance of government aid, which the government used to do. Yes there are many nonprofits and they do overlap but if in fact they are creating better, healthier, more artistic and diverse communities (which they are) than the government, who will not support them, can at least give them a tax break. Nonprofits are employing 14 million folks – no small contribution — during these economically challenging times. We should be applauding the work of the nonprofit sector!
Dear Sir/Madam,
This is Edward from Artivist Film Festival. Since 2003, we have included NGOs as an integral part of our film festival experience. I was wondering if you have the access to the number of members for the various charities’ SoCal chapters? Or, if you know anyone I can contact to acquire such reference for our research purpose? I appreciate your kind help!
Sincerely,
Edward Lin