Editors’ Note: While the media, researchers, and nonprofits use some impressive numbers to describe the nonprofit sector, NPQ remains uncomfortable about how the scope and size of the nonprofit sector are defined. Jon Pratt takes on this subject, examining the implications of these oft-cited numbers.

It is widely accepted that 83 percent of the mass of the universe consists of dark matter—galaxies that create gravitational fields but are invisible to astronomers and astronauts.In the nonprofit world, the invisible dark matter consists of the smaller organizations underneath the radar of researchers and the IRS—informal, unincorporated, so small they are not required to file IRS forms—as well as the 350,0001 religious congregations exempt from filing requirements. How many are there? The number is currently unknown but will soon become more knowable.

Unlike virtually any other industry in the United States, nonprofit organizations lack reliable or timely access to economic performance information. While the Departments of Commerce, Agriculture, and Labor collect statistics on specific industries, the economic activity of nonprofit organizations is tracked once a year through IRS Form 990, filed four and a half months after the end of the fiscal year and tabulated on a national level a year or two later.

The new Nonprofit Almanac 2007,2 prepared by the National Center for Charitable Statistics at the Urban Institute and based largely on IRS Form 990 filings, provides a comprehensive update on the scale and scope of the nonprofit sector, including these facts:

  • In 2004 the United States had 1,413,708 official tax-exempt nonprofits,3 one organization for every 214 Americans, a ratio both higher and lower than some expected.
  • These organizations had revenues of $1.4 trillion and assets of $3.0 trillion.4
  • Among the total, 845,233 were IRS Code 501(c)(3) public charities, and 103,880 were 501(c)(3) private foundations.
  • 546,200 (64%) of the 845,233 recognized public charities do not report to the IRS, leaving 299,033 “active filers.”
  • These 546,200 nonfilers represent the unknown matter. No one knows how many are still active or whether they did much after receiving their 501(c)(3) letters from the IRS. (The July 1, 2006, fee increase for filing the Form 1023 application—which costs most organizations between $500 and $750—may decrease the number of hopeful-but-never-quite-airborne organizations—more about this below).

These numbers, however, create a lopsided impression. The concept of the nonprofit sector, in which a disparate group of organizations (from food pantries to Harvard University) are described as occupying the same section of the economy, sharing a common set of tax exemptions and Tocquevillian social capital–building relationships can be deceptive. Hospitals, for example, account for 60 percent of the total financial activity of the nonprofit sector.5 And, while combining the small with the large is a proven strategy in government relations, especially when demonstrating the negative effects and costs of government regulation, it can be a poor gauge to measure the standing of one’s own nonprofit relative to others.

Sometimes a single sentence will combine descriptions of local food pantries and neighborhood organizations with the aggregate numbers: 1.4 million charities, 8.3 percent of all wages and salaries paid in the United States, and $1.8 trillion in assets.6 These figures could lead some members of the public to conclude that local pantries and neighborhood organizations must not be so needy after all.

It is interesting but not particularly useful to know that your organization is one of 1.4 million organizations with nearly $3 trillion in assets. Instead, for many boards and managers, the most useful comparisons are those involving “similarly situated organizations”: nonprofits conducting the same kinds of activities, residing in the same geographic location, and having the same size and revenue type. (A tool created to conduct such an analysis was provided in “Financial Strategy Tools: Cohort Analysis,” Nonprofit Quarterly, Spring 2006.)

Categorizing the 1.4 million organizations along these lines indicates the number of counterparts that the majority of NPQ readers actually have: that is the 299,033 social service, community, arts and culture, legal, civic, and environmental organizations with more than $25,000 in annual financial activity. This could be called the “nonprofit wing” of the nonprofit sector: those organizations most reliant on charitable contributions and individual participation and the least likely to hold their assets in securities.

The Nonprofit Almanac 2007 shows that the nonprofit sector is continuing to grow and has posted its “biggest nonprofit ever” in 2004, based on financial activity with public charities reporting $1,050 billion in revenue (up from $763 billion in 1999 and $538 billion in 1994). As always, though, averages tend to obscure the picture and fail to account for the dominance of the largest organizations (i.e., the light matter).

Shrinking Nonprofit Universe: 2010

The biggest revelation of the true size of the dark matter is on the horizon: a new federal “Are the lights still on?” requirement. Organizations are in the process of being informed of this requirement via notices mailed to their last known address. Every public charity with annual financial activity of $25,000 or less must now file an annual notice electronically with the IRS that discloses the following:

  • the organization’s legal name;
  • the organization’s mailing address;
  • the organization’s Web site address;
  • the organization’s taxpayer identification number;
  • the name and address of a principal officer;
  • evidence for continuation of the organization’s exemption from filing Form 990; and,
  • upon termination of an organization’s operation, notice of that termination.

This requirement is effective for tax years that begin after August 17, 2006. While there are no monetary penalties for failure to file, if organizations do not file for three consecutive years, it will result in revocation of tax-exempt status.

There is no question that smaller organizations represent an important, albeit unknown, share of nonprofit activity—operating small-scale food pantries, summer camps, cultural activities, and neighborhood participation and issue advocacy groups. They tend to be more fleeting than established organizations. Look back 20 years, and many of the organizations devoted to grassroots community efforts at that time have disappeared or become something else.

By May 15, 2010, the deadline of three years of required reporting for the 546,200 organizations with less than $25,000 in revenue will have arrived. If they have not electronically filed their information by then, the IRS can revoke their tax-exempt status, ending their ability to receive tax-deductible contributions. But many organizations may not know their tax-exempt status is jeopardized if the notice to file is sent to an outdated address. These organizations may not learn until years later that their status has been revoked and that it costs $750 to reapply (assuming the fee doesn’t increase by 2010).

Last year a possible foretelling of what might happen nationally occurred at the state level. In Minnesota, which has an annual filing requirement with the secretary of state, 4,712 organizations were statutorily dissolved on January 1, 2006. Unfortunately, at least 100 of these organizations were very much alive, with employees, offices, active boards, and ongoing operations. The loss of corporate status is serious in itself, putting corporate immunity in doubt and also making the organization’s name available for another organization to appropriate.

How many of the half million nonfilers will survive this cut? If the Minnesota example is any indication, expect a mass revocation and disruption in the dark matter of the nonprofit universe.

Individual donations. The Center on Philanthropy at the University of Indiana finds that individual giving generally tracks the ups and downs of the S&P 500. “Fundraisers are reporting a fairly stable giving environment,” says Patrick M. Rooney, director of research for the Center on Philanthropy, in a press release about the center’s semiannual “Philanthropic Giving Index.”7 “Nearly 50 percent of fundraisers surveyed reported that the economy was having a positive impact on giving,” he said. “This is probably tied to improved stock market conditions. However, about 30 percent of fundraisers said the economy was negatively impacting giving. The result likely will be a year-end giving season that is similar to last year.”

Nonetheless, in 2006, total year-end individual donations will be lower than in 2005 due to the thankful absence of a tsunami- or Katrina-scale disaster (some have noted that bad news is always good news in fundraising). Warren Buffet’s highly public commitment of 85 percent of his Berkshire stock to the Gates Foundation went down as the largest philanthropic gift in history and generated hopes that other superwealthy might follow suit. Unlike other large-scale donations, which have gone to foundations or universities, the Buffet gift targeted low-income individuals mostly outside the United States.

The field for individual contributions is crowded and not restricted to charitable organizations. The 2008 presidential and congressional campaigns are already taking shape, and for the first time the presidential race will reach the $1-billion level. Political campaigns are aggressive fundraising efforts, with candidates fishing in the same stream as public policy, advocacy, and social change organizations. In some instances, as reported by the Campaign Finance Institute, or