Number Of Nonprofits Down, Filing With IRS Up

March 27, 2012       Mark Hrywna      

The overall number of nonprofit organizations in the United States dropped by 18 percent last year as the number of applications for tax-exempt status declined by about 7 percent compared to 2010.

The Internal Revenue Service (IRS) Data Book for 2011, released this week, indicates there were 1,494,882 registered 501(c) organizations in the United States last year, compared with 1,821,824 in 2010. The number of tax-exempt organizations filing tax returns actually grew by 3.1 percent, to 1.385 million. The federal fiscal year ends Sept. 30.

The number of applications for tax-exempt status was down about 7 percent last year compared to 2010, from 65,648 to 60,980. As is typically the case, the vast majority were 501(c)3 organizations.

There were 60,980 applications for tax-exempt status with the IRS granting approval to 54,701, or almost 90 percent. Some 217 were disapproved while 6,062 were classified as “other.” The approval rate was about 82 percent in 2010 but almost twice as many applications were classified as “other” as compared to 2011.

The IRS last year made efforts to purge inactive organizations from its records, and every type of organization within the 501(c) section of the tax code experienced a decline in 2011. The largest aggregate drop was among 501(c)3 organizations, considered “religious, charitable and similar organizations,” down more than 200,000, or 15 percent, to 1,080,130. Among the largest percentage declines were 501(c)4 “social welfare organizations,” down 30 percent.

Among the numbers for 2011:

501c3 Religious, charitable and similar organizations: 1,080,130 -200,609 -15.6 percent

501c4 Social welfare organizations: 97,382 -41,747 -30 percent

501c5 Labor and agriculture organizations: 51,588 -11,424 -18 percent

501c6 Business leagues: 70,330 -22,001 -24 percent

501c7 Social and recreation clubs: 57,793 -21,925 -27.5 percent

501c8 Fraternal beneficiary societies: 53,245 -10,146 -16 percent

501c9 Voluntary employees’ beneficiary associations: 7,810 -3,939 -33.5 percent

501c10 Domestic fraternal beneficiary societies: 16,678 -1,632 -9 percent

The IRS last year revoked the tax-exempt status of an estimated 275,000 organizations after they did not file tax returns for three consecutive years, ending in 2009. The vast majority of those organizations likely were small, local organizations that were no longer in existence. The Pension Protection Act (PPA) of 2006 enacted the filing requirement in 2007, even for the smallest organizations, in an effort to purge the IRS records of inactive groups.