The recent decade has seen a tsunami of growth of U.S. nonprofit organizations many of them sheltering enormous revenue and assets under the tax-free umbrella. Some are also directly or indirectly in competition with private enterprise, which has to shoulder more of the remaining tax burden on an unlevel playing field. Additionally, nonprofits have increasing political influence because of their wealth.
Obviously, many non-profits have a political slant from the liberal Center for American Progress to the conservative Heritage Foundation; all of them claim to be operating in the public interest – but you have to remember it is usually the public interest as they see it. When it comes to politics, money talks and big money does not talk – it shouts.
The U.S. population increased 9.7 percent from 1999 to 2009, while the number of federally recognized nonprofits increased 31.5 percent from 1.2 million to almost 1.6 million. Registered public charities increased 59.3 percent alone, while the business leagues and chambers of commerce increased only 2.9 percent.
The 824,920 federal nonprofits that filed with the IRS in 2010 – many are exempt from filing – had a stunning $1.66 trillion in annual revenue and assets totaling $3.82 trillion. Additionally, 33,288 of the 88,879 private filing foundations each had $1 million or more in assets. Those private foundations reported a total of $43.8 billion in annual revenues and $583.5 billion in total assets.
California grants state-level tax exemptions using its own rules for both tax-exempt profit and nonprofit organizations, but federal nonprofits in California had assets of $419.2 billion in 2010.
Nonprofits should not be condemned broad brush. I have contributed to, used, and/or supported non-profits ranging from small local operations to national charities. In fact, much of the data for this column came from the IRS, but a division of the Urban Institute – a nonprofit – published it. I often use nonprofit research reports as vital sources of information and many charities also do much good, but the system is not without serious problems.
In 2011 alone, the IRS announced that some 275,000 nonprofits lost their tax-exempt status because they failed to file their annual returns for three consecutive years. There are also many charities who are a lot more charitable to their founders, executives and fundraisers than to anyone one else. Finally, there is the thorny and serious issue of politics, lobbying, and influence.
Nonprofits registered under IRS Code Section 501(c)(3) are restricted in how much political and legislative activity they may conduct. Political activities and legislative activities (commonly referred to as lobbying) are two different things, and are subject to different sets of rules. The rules depend on several issues: The type of tax-exempt organization (different rules apply to private foundations), the type of activity (political or lobbying) and the scope or amount of the activity.
The IRS explanations and rules for political activities and lobbying by nonprofits are 106 and 153 pages long, respectively. You can be sure that any rules requiring more than 250 pages to explain have plenty of wiggle room for everybody. My observations are that these “rules” are rarely enforced except for some showcase prosecutions of egregious violations.
Many people have recently demanded new laws to reduce the influence of private money in elections, but the public appears to be ignoring the growing influence of organizations with tax-exempt funding. Unfortunately, the politicians are unlikely to clamp down on the commercial, political, or lobbying operations of non-profits except for those supporting their opponents; they are not known to bite the hand that feeds them.
Marty Richman is a Hollister resident. His column runs Tuesdays.
