The nonprofit sector in the U.S. represents a large and diverse group of organizations and serves as a major cultural, social, and economic force in our society. It accounts for 5% of the nation’s gross domestic product (GDP), 8% of salaries and wages, and employs close to 10% of the U.S. workforce.
The nonprofit sector’s growth has already surpassed both private and government sectors and continues to grow steadily According to the Urban Institute, the number of reporting nonprofits grew 48 percent between 1999 and 2009. Currently there are approximately 30 types of charitable and nonprofit organizations that are categorized under various Internal Revenue Code (IRC) sections, including advocacy, lobbying and political organizations, charitable entities, educational institutions, healthcare and medical research organizations, professional and trade associations and private foundations. The majority (over 70%) of nonprofits operating in the U.S. (and those holding most of the sector’s revenues and assets) are exempt from tax under the Internal Revenue Code Section 501(c)(3). On average the IRS approves about 50,000 applications for tax-exempt status each year. During Fiscal Year 2011, 49,677 applications filing under the IRS code 501(c)(3) were approved.
Table 1. Number of Tax-Exempt Organizations and Nonexempt Charitable Trusts, Fiscal Years 1999-2011
- The assets of operating nonprofits exceed $2.6 trillion, with more than $1.4 trillion in revenue and more than $1.4 trillion in expense.
- After adjusting for inflation, the revenue of reporting public charities grew 36% between 1999 and 2009.
- The majority of nonprofit revenue comes from fees for services and goods from private and government sources (75%), private contributions (13%) and government grants (9%).
- According to the Giving USA 2011 Foundation, in 2010 private charitable contributions to both reporting charities as well as religious congregations exceeded $290 billion (an increase by 2% from 2009).
- Public charities spend approximately $900 billion on program services.
Trade and Professional Associations also play a vital role in our society through publishing educational materials, offering classes or conferences, and organizing networking and charitable events. They employ more than 1.2 million individuals and represent a major force in the meeting and conventions industry.
- According to the ASAE Foundation, membership associations generated $130 billion in revenue and held an estimated $245 billion in assets in 2009.
- The number of trade and professional associations has increased by 3.4% since 2001.
- In Fiscal Year 2011, the IRS recognized more than 70,000 trade and professional associations that filed under the 501(c)(6) status. More than 1,500 new applications filing for the 501(c)(6) status were approved by the IRS in 2011.
But with growth and media attention also comes added scrutiny from Congress and government agencies. In 2011, the IRS recognized more than 1.6 million active nonprofit organizations – a decrease by 16% from 2010. Such decline was highly influenced by the economy, decreasing revenue, reduced support from the government as well as changes in reporting and taxation. Especially in regards to the recently revised Form 990 (for more information on the Form 990 reporting and disclosures, please refer to Tate and Tryon’s New Benchmarking Study). As a consequence, over 300,000 organizations had their status revoked for failing to satisfy the Pension Protection Act (2006) requirement of filing for three consecutive years. Such organizations are no longer eligible to receive tax-free contributions.
As the IRS continues to display strong compliance presence (the percentage of returns they review each year has doubled in the last 8 years), for most nonprofit and membership organizations finding an accounting firm that has extensive experience in dealing with nonprofit tax and accounting issues is crucial to accomplishing their mission. Tate & Tryon’s expertise is grounded in a keen understanding of the mission-based work of nonprofits and of their unique accounting, reporting and decision-making needs and we would be happy to assist you in achieving your goals.
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