Tips for Reporting on Charities

Whether or not this is your first time covering a story about a charity, we compiled some basic facts and clarifications to help you through the philanthropic maze.

CHARITY VOCABULARY

The term “charity” is sometimes used interchangeably with nonprofit, not-for-profit, charity, non-governmental organization, tax-exempt organization and 501(c)(3). Some of these terms mean different things as explained below.

Nonprofit organization:

Generally, a nonprofit organization is an entity that filed papers to incorporate in a U.S. state (or Canadian Province) as a corporation that has a stated “nonprofit” purpose. It does not have owners and money left after expenses goes back into the corporation. Unless it applies for and receives an exemption, it would be subject to federal income tax. Another feature is that the nonprofit term is very broad and includes a wide range of different types of entities, not just charities.

Not-for-profit:

This term means the same thing as nonprofit, but the accounting profession generally prefers the more formal, not-for-profit designation in referencing such entities to help distinguish them from for-profit corporations.

Non-governmental organization:

Within international and diplomatic circles, the term non-governmental organization or NGO, is more often used, instead of nonprofit. This is done for two reasons. One is that it helps distinguish such groups from governmental programs (for example, the Peace Corps) which, although they may share similar purposes and objectives to nonprofits, they are managed and run by government agencies. Also, the term “nonprofit” is best confined to capitalist economies while NGO is a designation that is applicable to organizations in many different cultures.

Tax-exempt organization:

Generally, to be exempt from paying federal income tax, a charity or other nonprofit organization would have to apply for tax exempt status from the IRS. There are about 20 different types of tax-exempt status that a nonprofit can obtain, here is a sampling of some of the most popular categories. The number refers to the section of the Internal Revenue Code that defines the catregory:

Section of Internal Revenue Code Type of Organization
501(c)3Charity
501(c)4Lobbying organization
501(c)5Union
501(c)6Business membership
501(c)8Fraternal beneficiary
501(c)10Domestic fraternal societies, lodges
501(c)19Veterans

 

Churches and other houses of worship:

Churches, synagogues, mosques, and other houses of worship do not have to apply for federal tax-exempt status. They automatically have charitable 501(c)3 status as long as they fall under the IRS definition of a house of worship (i.e., ordains ministers, holds services, etc.). In general, this automatic exemption applies to houses of worship, not to organizations that just have a religious theme related to their work. For example, a religious disaster relief organization. In some instances, an organization may fall under the tax-exempt status of a house of worship as long as they are fully controlled by that house of worship. For example, a community assistance organization that is a program of the Catholic church.

TAX DEDUCTIBIITY

Contributions to organizations that are tax exempt under sections 501(c)3 or 501(c)19 of the Internal Revenue Code are generally deductible as charitable donations for federal income tax purposes. If a donor receives something of value in conjunction with their donation (for example, a book or musical recording) generally only the portion of the gift that is above the fair-market value of what the donors received would be deductible.

The IRS requires the charity to provide the donor with a written statement if an individual makes a donation of more than $75 that is partly a contribution and partly for goods or services received. The statement should indicate the value of the goods or services received.

If an individual donates used clothing, furniture, or other items to a charity it is up to the donor, not the charity, to identify the fair market value of the item provided. This value is usually what the item would sell for in its current condition in a charity thrift store. If the item is in very bad condition, it may not be deductible at all.

For more detailed information on tax deductibility, see IRS Publication 526 – Charitable Contributions: https://www.irs.gov/pub/irs-pdf/p526.pdf

TOTAL U.S. GIVING

As reported by Giving USA, Americans gave $427.7 billion in 2018 which represents a 1.7 percent decline in the inflation-adjusted total of $435.1 billion contributed in the previous year. Giving USA - The Annual Report on Philanthropy for the Year 2018, which was released in June 2019, is a public outreach initiative of the Giving USA Foundation that is researched and written by the Indiana University Lilly Family School of Philanthropy.

There are a number of issues that contributed to this decline, including, but not limited to, the recent changes in the U.S. tax code and the volatile U.S. stock market, but more research is likely to be conducted to help understand these philanthropic statistics.

The 2018 giving total is not the first decline in charitable giving in the U.S. over the past forty years. While a decline is not common, it does not necessarily represent a continuing trend.

TOTAL NUMBER OF U.S. CHARITIES

Each year the U.S. Internal Revenue Service produces a Data Book that provides information and statistics about returns filed, taxes collected and related issues such as data on tax-exempt organizations. The 2018 Data Book which was released in May 2019 includes a table which shows the number of tax-exempt organizations. There are 20 different categories that fall under section 501(c) of the Internal Revenue Code which includes various types of organizations (including, but not limited to, labor unions, lobbying organizations, business leagues, recreation clubs, fraternal groups, benevolent life insurance companies, etc.). For 2018, the IRS reports that the combined total number of organizations under this 501(c) category was 1,682,091.

The largest of these categories in terms of the number of organizations, is section 501(c)(3) which covers charitable organizations. The IRS reports that in 2018 there were 1,327,714 organizations that were included in this 501(c)(3) charitable tax-exempt status. That total represents 78% of the combined total number of 501(c) groups referenced above.

The actual total number of charities in the U.S., however, may be a bit higher than 1,327,714 for several reasons:

  • Houses of worship (churches, synagogues, mosques, etc.) are not required to file for 501(c)(3) status in order to have charitable tax-exempt status. It is estimated that there are about 350,000 religious congregations in the U.S.
  • If an organization that operates under the IRS definition of a charity has gross revenue of less than $5,000, it is not required to apply for 501(c)(3) in order to have this charitable tax-exempt status.
  • Some organizations may fall under a group exemption letter held by a parent organization.

While that 1.33 million total is huge, keep in mind that most of these charities are very small. More than half of them bring in $50,000 or less and do not fill out the IRS Form 990. Instead, they complete the IRS Form 990-N which is a type of electronic postcard that confirms they continue to operate. The remainders complete either IRS Form 990-EZ (gross income between $50,000 and $200,000) or the full IRS Form 990 ($200,000 or more in gross revenue.) Also, this group includes about 87,000 private foundations (in general, these are private or corporate foundations that give out grants and do not solicit) which complete the IRS Form 990-PF.

Finally, the total number of charities has been growing. As shown in the IRS Data Book for the past five years, the total average gain in the number of 501(c)(3) organizations has been about 42,000 charities per year. This average increase incorporates newly formed organizations and reflects subtractions of those that have either lost their exempt status or ceased operations:

Number of 501(c)(3) tax-exempt charities

20141,117,941
20151,184,547
20161,237,094
20171,286,181
20181,327,714