Every few weeks, someone new raises the specter of “too many nonprofits.” The topic is a perennial bugaboo, taken up by those who think there’s too much duplication, or too much competition for funding, or that it’s just plain “too confusing.”

But if our recent high-water mark of 1.4 million nonprofits was seen as tipping the scales, do critics feel any better now that some 400,000 have been dropped from the rolls? IRS enforcement of the Pension Protection Act resulted in the revocation of tax-exempt status of over 275,000 organizations as of last June, and another 125,000 since then. The move impacted organizations with less than $25,000 in gross receipts that had failed to file the new Form 990-N for three consecutive years. Many of these were likely already defunct, possibly for decades. Nonetheless, as seen in this graphic, the IRS action has changed the landscape of what we know about the nonprofit sector.

In Chattanooga, Tennessee, the reduction combined with other demographic and socioeconomic shifts to reveal a dramatic shrinking of the local nonprofit sector to near half of what it once was. The effects of the recession have likely led other communities to note a similarly marked decrease in nonprofits. At the same time, the need for essential programs and services has never been greater.

There are more than 27 million small businesses in the U.S. providing products and services. There are now only about 1 million nonprofits providing cultural enrichment, health and human services, educational programming, environmental preservation, and a range of other mission-driven activity. Why lionize one and view the other as inherently problematic?

We think it’s high time the IRS cleaned up its lists to better reflect the reality of the sector. But we would also like to see those who worry about whether we have the right number of nonprofits shift focus to what the organizations are actually doing.

Tags: accountability, Chattanooga, community, competition, demographic shifts, economy, Form 990, funding, IRS, Nonprofit Sector, nonprofits, Pension Protection Act, philanthropy, social sector, tax-exempt, Trends

This entry was posted on Wednesday, June 27th, 2012 at 1:31 am and is filed under Assorted Musings, Nonprofit Sector, Trends. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.