Charities and other tax-exempt organizations, 2001

Statistics of Income Bulletin, Fall, 2004 by Paul Arnsberger

Nonprofit charitable organizations exempt from income tax under Internal Revenue Code section 501 (c)(3) filed over 240,000 information returns for Reporting Year 2001, an increase of 5 percent from the previous year. These organizations held over $1.6 trillion in assets, an increase of 4 percent from 2000, and reported $897 billion in revenue, 70 percent of which came from program services and activities (Figure A). The statistics in this article exclude private foundations, most organizations with receipts totaling less than $25,000, as well as most churches and certain other types of religious organizations.

Data for certain other organizations, with tax-exempt status under Code sections 501(c)(4) through (9), are also presented in this article. Such organizations are generally diverse both in function and financial character. For 2001, voluntary employee benefit associations, exempt under Code section 501 (c)(9), reported assets of $110.6 billion and revenue of $101.7 billion, larger amounts than those registered by organizations classified under each of the Code sections, 501 (c)(4) through (8).

The statistics for charities and other tax-exempt organizations reported in this article are based on data compiled from Form 990, Return of Organization Exempt from Income Tax, and Form 990-EZ, the short form version of this information return. The latter form may be completed by smaller organizations, those with end-of-year assets of less than $250,000 and gross receipts of $25,000 to $100,000. Only condensed income statements and balance sheets are required from filers of the short form, which accounted for 22 percent of the returns filed by organizations exempt under Code sections 501 (c)(3) through (9) for Reporting Year 2001.

Charitable Organizations Tax-Exempt under Internal Revenue Code Section 501(c)(3)

In order to qualify for tax-exempt status, an organization must show that its purpose serves the public good, as opposed to a private interest. Organizations that are exempt under Code section 501 (c)(3) are those whose purposes are religious, charitable, scientific, literary, or educational. They may also foster national or international amateur sports competition, prevent cruelty to children or animals, or test for public safety. The activities of nonprofit organizations are limited in that they must further one or more of the purposes for which they were granted tax-exempt status. Examples of these "charitable" organizations include nonprofit hospitals, educational institutions, youth organizations, community fundraising campaigns, public charities, local housing organizations, historical societies, and environmental preservation groups. These organizations may not distribute net earnings to a private shareholder or individual. Participation by an exempt organization in activities that can influence legislation, or in a political campaign on behalf of, or in opposition to, any candidate, is also restricted. Generally, a donor's contribution to one of these organizations is tax deductible [1].

Of the 713,288 active nonprofit charitable organizations recognized by the Internal Revenue Service (IRS) under Code section 501 (c)(3), 240,569 filed Form 990 or 990-EZ returns for accounting periods that began in 2001 [2]. Those not required to file included churches and certain other religious organizations, as well as organizations with annual gross receipts totaling less than $25,000 [3]. Nonprofit private foundations, which are also tax-exempt under Code section 501(c)(3), are required to file separately, on Form 990-PF, Return of Private Foundation [4]. The number of returns filed by nonprofit charitable organizations for 2001 was 5 percent more than for 2000. Form 990-EZ returns represented 19 percent of total returns filed by nonprofit charities.

Financial Characteristics of Nonprofit Charitable Organizations

Although 64 percent of the returns filed by section 501 (c)(3) organizations for 2001 were filed by organizations with assets of less than $500,000, these organizations held only 1 percent of the total assets and reported less than 4 percent of total revenue (Figure B). In comparison, larger organizations, those with assets of $10 million or more, represented just 6 percent of the returns filed, but accounted for 88 percent of the total asset holdings and 80 percent of the total revenue reported.

The assets of all nonprofit charitable organizations filing Forms 990 and 990-EZ for 2001 totalled $1.6 trillion. "Cash, savings, and investments" was the primary component of assets for these organizations, accounting for 53 percent of the total. "Land, buildings, and equipment" owned by nonprofits (but not for investment purposes) represented 27 percent of total assets [5]. The total fund balance (also called "net assets" or "net worth") of Form 990 and 990-EZ tilers remained virtually unchanged at $1.0 trillion for 2001.

The nonprofit charitable organizations in this study reported total revenue of $897.0 billion for 2001. "Program service revenue" was the major source of revenue for these organizations. This revenue is comprised of the fees collected by organizations in support of their tax-exempt purposes and includes income such as tuition and fees at educational institutions, hospital patient charges (including Medicare and Medicaid payments), admission fees collected by museums or community performing arts groups, and YMCA/YWCA. Overall, program service revenue totaled $630.8 billion, a 9-percent increase from 2000.