Good-Bye, 'Nonprofit(s)'; Hello, 'Philanthropy'(-ies) and 'Charity'(-ies)

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" (2016)	Charities' % of "Nonprofits"	Phillanthropy's % of "Nonprofits"
Alaska	1,388	102	1,490	5,225	27%	29%
Alabama	4,436	1,029	5,465	20,577	22%	27%
Arkansas	2,949	408	3,357	13,678	22%	25%
Arizona	5,238	1,032	6,270	22,907	23%	27%
California	43,615	9,411	53,026	163,924	27%	32%
Colorado	7,919	1,618	9,537	30,228	26%	32%
Connecticut	5,671	1,690	7,361	20,416	28%	36%
DC	4,130	464	4,594	13,345	31%	34%
Delaware	1,241	1,418	2,659	6,452	19%	41%
Florida	17,725	5,909	23,634	82,056	22%	29%
Georgia	9,401	1,796	11,197	43,896	21%	26%
Hawaii	1,877	432	2,309	7,571	25%	30%
Iowa	4,487	983	5,470	27,936	16%	20%
Idaho	1,604	369	1,973	7,801	21%	25%
Illinois	14,411	5,536	19,947	66,053	22%	30%
Indiana	7,430	1,278	8,708	36,537	20%	24%
Kansas	3,518	826	4,344	16,386	21%	27%
Kentucky	4,152	650	4,802	18,401	23%	26%
Louisiana	4,063	667	4,730	19,294	21%	25%
Maine	2,475	446	2,921	9,157	27%	32%
Maryland	7,986	1,679	9,665	33,635	24%	29%
Massachusetts	13,055	3,438	16,493	37,502	35%	44%
Michigan	10,132	2,385	12,517	47,890	21%	26%
Minnesota	8,432	1,506	9,938	33,977	25%	29%
Mississippi	2,211	338	2,549	13,082	17%	19%
Missouri	6,682	1,469	8,151	34,647	19%	24%
Montana	2,094	313	2,407	10,088	21%	24%
Nebraska	2,704	644	3,348	13,502	20%	25%
Nevada	1,748	651	2,399	8,781	20%	27%
New Hampshire	2,368	504	2,872	8,162	29%	35%
New Jersey	11,094	3,191	14,285	42,943	26%	33%
New Mexico	2,383	341	2,724	10,096	24%	27%
New York	28,952	10,905	39,857	102,645	28%	39%
North Carolina	10,437	3,878	14,315	47,504	22%	30%
North Dakota	1,187	116	1,303	5,628	21%	23%
Ohio	14,210	3,484	17,694	65,190	22%	27%
Oklahoma	3,827	932	4,759	18,730	20%	25%
Oregon	6,240	824	7,064	23,131	27%	31%
Pennsylvania	17,205	5,059	22,264	68,199	25%	33%
Rhode Island	1,625	1,667	3,292	7,984	20%	41%
So. Carolina	4,838	638	5,476	24,751	20%	22%
South Dakota	1,312	180	1,492	6,441	20%	23%
Tennessee	6,624	1,028	7,652	31,552	21%	24%
Texas	22,952	5,564	28,516	109,797	21%	26%
Utah	2,101	782	2,883	9,171	23%	31%
Vermont	1,695	260	1,955	5,849	29%	33%
Virginia	10,607	1,766	12,373	42,762	25%	29%
Washington	8,571	1,502	10,073	36,244	24%	28%
West Virginia	2,079	330	2,409	10,400	20%	23%
Wisconsin	7,537	2,221	9,758	34,575	22%	28%
Wyoming	1,033	283	1,316	4,747	22%	28%
Total	371,651	93,978	465,629	1,581,445	24%	29%

 

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.

George McCully is president and CEO of the Massachusetts Catalogue for Philanthropy and author of Philanthropy Reconsidered (2008).

Comments

[Isabel Lagerfeld]

Great overview George

Fascinating number of philanthropic and charitable organizations.

Does such a vast number of philanthropic organizations run a ''closed loop'' support without considering outsiders' efforts or are they open to the new ideas?

It is staggering that out of 101 leading philanthropic organizations, which were approached by our Education Foundation in July this year, only 11 replied (including 3 sarcastic replies) and all rejected our offer for partnership without a single offer for even a small donation.

We just returned from our world trip where we met our partners - educational organizations and potential grantees - and realized that we have to seriously reconsider our objectives in order to continue operating our Foundation.

"Would not someone show a basic curiosity to see what we can offer?" is the question which we cannot get out of our minds. Or do you really need to be based in USA to operate Foundation.

Thanks
Isabel Lagerfeld is a Program Director in the New Zealand based 89 Butterflies Education Foundation

[George McCully]

Hi Isabel—

Thanks for writing and for your kind comments. I take it that your education "foundation" is a charity, not a grant-maker, and that the experience you cite here is in fundraising.

In that case, I have several suggestions: a) in the US we refer to sending out 101 proposals to grantmakers as the "shotgun" approach, which almost never succeeds; we generally advocate more a "rifle" strategy (please excuse the militaristic metaphors) in which individual donors and grantmakers are approached with careful consideration of their philanthropic goals, what they seek to accomplish with their funds; b) here about 11 out of 12 grant proposals are rejected, and the reason is that they tend to be variations on the theme of "We do good work; we are nice folks; give us your money." That is not a competitively advantageous approach; c) it's better to approach grantmakers and donors as potential collaborators, in which both sides share philanthropic values and intentions, in which they are both more likely to succeed by working together, each providing their respective and complementary resources: funds and expertise.

I hope I have understood your issue. If you wish to continue this conversation, please email me: [email protected] Thanks again for your query.

g.

[Gene Takagi]

Hi George,

Were Forms 990-N considered in the count? The NCCS Quick Facts About Nonprofits site reveals that pubic charities and private foundations make up about 76% of the tax-exempt organizations, not including churches and congregations that may self-declare 501(c)(3) status and not submit annual information returns to the IRS.

Thank you,
Gene

[George McCully]

Hi, Gene, and thanks for your excellent inquiry about two issues: filers of 990-N forms, and the NCCS “Quick Facts” summary number.

(As you undoubtedly know but for other readers, 990-N filers are a large number of small and local charities with revenues below $50K, who are therefore allowed to use the 990-N form—a postcard asking a few perfunctory questions—name, address, total revenue, and so on.)

On the first issue, of 990-N submissions, the NCCS TableWizard dataset did not include 990-N submissions—if they had, I’d have certainly included them. I believe the NCCS dataset does not include them because the IRS does not provide them—I am verifying this as I write.

When the Catalogue for Philanthropy conducted its detailed examination of the MA Master Nonprofit Data File, we found the 990-N filers clustered in the 15% of nonprofits that were in the "gray area" between the 10% hard-core philanthropy and the 75% obviously non-philanthropic nonprofits. They were often so small and local that their members or supporters were interested beneficiaries—parents and grandparents of students in schools or on athletic teams, or members of American Legion chapters, etc. When the IRS began cancelling the "public charities" classifications of serial non-filers, we found most of those were in that "gray" group.

As for the second issue, the “NCCS Quick Facts About Nonprofits” assertion that 76% of “tax-exempt” organizations are public charities and private foundations, let me say simply that it is not supported by IRS/NCCS data, which is what we have presented in the Chart.

Thanks again, g.

[George McCully]

I stand corrected. The TableWizard does include 990-N filers; I was mislead by the note on the charities column which said it did not include them, but they are in a separate column off to the right. If they are included, and as I said they are a large number of small entities, the grand total is 75% of the nonprofit total in numbers of organizations, though not in dollars of revenue. This is my mistake and I apologize.

I believe I did not pursue looking for them because I associated them, as very small and local entities, with the "gray" group which we found in MA to be often serving not the public in general but interested parties, and often not reporting any revenue from grants and donations or showing interest in public fundraising. This is one place where we differ from the IRS classification system in trying to identify authentic philanthropy. The NCCS total includes organizations reporting zero revenue but does not indicate what those numbers are.

I'll update the Chart with the 990-N column, and review if I can the bottom line conclusion, which I believe still stands though not as dramatically, that "nonprofit" and "philanthropy" are not synonymous. Please stay tuned.

[George McCully]

With thanks again to Gene for raising this illuminating issue, and upon further reflection, I have concluded that while it introduces an additional consideration, it does not affect the main issue or conclusion of whether “philanthropy” and “nonprofit” are synonymous.

Everyone seems to agree that on paper, at least 25% of “nonprofits” are not philanthropy.

The IRS itself does not use the term “philanthropy.” Its ”nonprofit” and “tax-exempt” terminology has been, outside the IRS, widely conflated and confused with philanthropy, though not on the basis of evidence. That is the target of my blog piece, which invites such evidence.

Gene has come forward to raise, quite properly, the issue of the large number of filers (since 2008) using the postcard 990-Ns (for organizations reporting less than $50K in revenue, including no revenue). There is, however, no evidence that this entire group or any substantial portion thereof is philanthropic, in the conventional sense of “private initiatives, for public good, reporting any revenue from tax-deductible donations.” Until such evidence is presented by anyone, the issue of synonymy is not affected.

The NCCS TableWizard system does not include data on the size or sources of those 990-N revenues. So far as I know, the only detailed analysis of this issue was the Catalogue’s own, of the entire MA cohort, in 2006-10. There we found that the large majority of these small, local organizations are simply not involved in the philanthropic marketplace. Though they are authorized to do so by the IRS as 501(c)3s, they do not in fact seek grants and donations because their modest budgets are supported from other sources—dues and other contributions by their own members, contract fees, other earned income, and even endowments. Many of course do not report any revenue.

So the bottom line remains that “philanthropy” and “nonprofit” are not synonymous, that this is confirmed by IRS/NCCS data, and that the rapidly increasing independent donor-based charities datasets increasingly confirm that the actual number of philanthropies or charities is only a minor portion of the 1.5 million “nonprofits.”

[MHager_ASU]

Thanks for the email alerting me to your post, George. I don't suspect that you'll ever get me to agree with limiting the definition of philanthropy to only those nonprofits engaged in 'public fundraising for tax-deductible donations.' However, rather than talking past each other on that point, I'll raise a question of internal consistency and seek your reaction. Seems that your accounting automatically puts private foundations in the "philanthropy" bin. However, most of those foundations would fail your 'public fundraising for tax-deductible donations' test; indeed, the IRS defines them as private foundations precisely because they fail the public support test. So, can we say that you are applying your 'philanthropy' definition consistently?

Mark

[George McCully]

Hi Mark, and thanks as always. Sorry for any confusion—you are entirely right, the criterion of engaging in public fundraising applies only to public fundraising charities. Because private foundations are universally regarded as philanthropic, we automatically put them in the "philanthropy bin" and never had to go beyond "private initiatives, for public good" as a test of whether in fact private foundations are such.

[George McCully]

However, I should add that our test for charities, of their qualification as philanthropy, is not only the fundraising issue, but begins with "private initiatives, for public good". We do not consider self-serving nonprofits to be philanthropic. I doubt that you and I would disagree on this point.

[Gene Takagi]

Thank you for consideration of the 990-Ns, George. As an nonprofit and exempt organizations attorney, I often emphasize the differences between "nonprofit" (a state corporate law term) and "tax-exempt" (which is generally used to refer to federal corporate income tax exemption). Conflating those terms can lead to misunderstandings on a micro- and macro-level. Terms like "philanthropy" and "social good" generally have no legal definition and are widely open to interpretation. I tend to shun away from disputes about definitional issues like this for which there are no legal distinctions, but it's a good point that we need to discuss them because public perception and public policy is often shaped by these colloquial terms.

[Gayle L. Gifford, ACFRE]

I'm having a great deal of difficulty wrapping my mind around this distinction. If an organization has revenues under $50,000 but meets the IRS public charities definition, why wouldn't that be a charity? The small community theater, the local sports team (which serves lots of kids, maybe even more than some of the larger charities), start up charities, Massachusetts has 79.5% of its exempt organizations with 501c3s and 69% of its exempt organizations meeting the IRS definition of public charity.

[George McCully]

Thanks for your comment, Gayle —

You are of course correct, that IN LAW all 501(c)(3) "public charities" are by definition "charitable corporations" and so may properly be referred to as "charities." They are not all, however, "philanthropic," which is NOT a term of law, or of the IRS, but of etymology and history going back some 2500 years (to line 11 of Prometheus Bound). Recent conventional definitions have varied quite widely and arbitrarily, which has impeded the development of donor education and a culture of philanthropy that would promote charitable giving (tax-deductible charitable donations, in law).

I would contend that the "best" definition — i.e., clearest, most precisely applicable in practice, and etymologicaly and historically authentic in connecting to the entire tradition in Western history (and not merely to modern private foundations) — is "private initiatives, for public good" (this may have been John Gardner's phrase), to which we have added "reporting any revenue from grants and donations," precisely because we were surprised to find in examining the entire MA cohort that most (60%) of 501(c)(3)s may well be self-serving and are not engaged in public fundraising (i.e., the philanthropic marketplace). They are not active in philanthropic fundraising because, as I said above, they don't need it — they rely on other sources to support their budgets, including earned income, government grants and contract fees, endowments, membership dues, etc.

To distinguish "philanthropy" from legal and IRS terminology is not necessary, but it is desirable if one is interested in donor education and developing a culture of philanthropy — because (as the Catalogue for Philanthropy discovered empirically) it is clearer, more precise, and more attractive and persuasive to donors than the recently adopted (circa 1950s) social-scientific and technical term "nonprofit."

I hope this helps. Thanks very much, Gayle, for your clarifying question.