Good-Bye, 'Nonprofit(s)'; Hello, 'Philanthropy'(-ies) and 'Charity'(-ies)
October 29, 2016
Computers and the Internet are producing an explosion of data and knowledge about philanthropy, enabling — and even compelling — us to update our terminology and practices.
The chart below is an example. It presents IRS data, via the National Center for Charitable Statistics (NCCS), on the numbers of charities and private foundations filing Forms 990, 990-EZ, and 990-PF in the last two years, arranged in new ways: by states and nationally, and as a percentage of all "nonprofits." The numbers show that "charities" and "philanthropic" organizations account for only about a quarter of the "nonprofits" in the U.S., rendering the conventional use of the latter as a synonym for charities and philanthropic entities problematic.
The term "nonprofit" refers to a tax-exempt organization. All charities and foundations are "nonprofits," but only a quarter of the "nonprofits" registered with the IRS are actually philanthropies — conventionally defined as "private initiatives, for public good, engaged in public fundraising for tax-deductible donations." The 75 percent of non-philanthropic nonprofits registered with the IRS are extremely heterogeneous and include things like condo associations, real estate trusts, trade associations, social clubs, cemeteries, teacher retirement funds, and so on. Although they are in the "public interest" (and thus are tax-exempt), they are generally self-serving and the donations they receive are not tax-deductible.
A decade ago, the Catalogue for Philanthropy examined in detail the IRS Master Nonprofit Data File for Massachusetts and found that 75 percent of the state's more than 40,000 "nonprofit" organizations had nothing to do with philanthropy as defined above. Another 15 percent fell into a "gray" area requiring further examination beyond what we could glean from their 990s and websites. The remaining 10 percent, approximately 4,000 organizations, were determined by us to be philanthropic. Based on that 1:10 ratio, we estimated that, nationally, there were 200,000 to 300,000 "philanthropies" registered with the IRS, out of a "nonprofit" total (depending on the source) of 1.5 million or more.
Since then, my colleagues and I have identified independent data — millions of contributions, nationwide, over the last twenty-five years from donor-advised funds, community foundations, and Internet giving platforms — that seem to confirm our view that the number of charities and philanthropies in the U.S. is closer to our lower estimate than the million-plus organization number routinely cited as the size of the "nonprofit" sector.
Then, last spring, the Chronicle of Philanthropy reported that in 2015 the IRS had received only 295,000 Form 990s, the tax document that active 501(c)(3) "public charities" are required to file annually. In our view, this is incontrovertible evidence that confirms our lower estimate of the number of charities nationally and further suggests that the number of Form 990s filed with the IRS could be a useful criterion for distinguishing the number of "public charities" from "nonprofits."
After the Chronicle article appeared, we went to the NCCS website and, using the "TableWizard" tool there, produced counts for the previous two years (August 2014 to August 2016) of the numbers of charities and private foundations, by state, that had submitted Forms 990, 990-EZ,or 990-PF. To those, we added another category, number of "nonprofits" by state (and total). This is the result:
Currently Active Charities, Foundations, "Nonprofits": NCCS, 2014-16
|State||Charities Filing 990, 990-EZ||Private Fdns (990-PF)||"Philanthropy" (Charities+Fdns)||"Nonprofits"
|Charities' % of "Nonprofits"||Phillanthropy's % of "Nonprofits"|
These numbers show the approximate size of the institutional philanthropic community in each state and nationally, which has numerous benefits, including:
- Community and state-focused foundations, regional associations of grantmakers, nonprofit associations, and intermediary organizations can more accurately evaluate their programmatic coverage (which is likely to be greater than previously thought, owing to the lower total number of charities to be served).
- With the smaller number of charities, the data is more manageable. In Massachusetts, for example, we created an online Philanthropic Directory (launched in 2011) listing all four thousand charities in the state, or any part thereof, organized by location, field, revenue size, institutional maturity (determined by date of IRS certification), and population served, and directed users to the charities' own websites for additional information (including contact information). With this tool (now patented), users can immediately identify all charities in the state of potential interest to them.
We respectfully submit that these numbers should settle the debate over the use of the term "nonprofit"(s) as a synonym for "charity"(-ies) or "philanthropy"(-ies). Until now, that debate has focused on semantic issues. But with solid, current data in hand, it's time to update our vocabulary. In our view, the replacement of a social-scientific term ("nonprofit") with a cultural term ("philanthropy") has many practical benefits and will facilitate donor education and the further development of a robust culture of philanthropy in America.
In short, the explosion of philanthropic data is driving a knowledge revolution that gives professionals and the public a much clearer picture of what philanthropy actually is, how it is organized, and what opportunities exist and/or are waiting to be developed. We hope our analysis will spark further conversation around this important topic. We welcome your thoughts and feedback in the comments section below.