CHAPTER 1
IN THE BEGINNING: THE NONPROFIT SECTOR CONSIDERED

By any reasonable standard, tax-exempt nonprofit organizations are plentiful in our midst. One 2002 publication entitled The State of Nonprofit America estimates that there are 670,000 tax-exempt nonprofit organizations designated under Section 501(c)(3) of current Internal Revenue Service (IRS) regulations. (The IRS, for better or for worse, is responsible for federal oversight of charitable organizations in the United States.)

As someone interested in foundations as a grantmaker, or someone curious about the nature of financial support, you will find the organizations described by Section 501(c)(3) most interesting. This is because these organizations are consistently identified as eligible to receive grants from grantmaking foundations, corporations and units of government. In other words, most funding sources will provide grants only to 501(c)(3) organizations. In addition, individuals tend to direct charitable contributions to 501(c)(3) organizations, because of the favorable tax considerations for doing so.

As for defining a 501(c)(3), consider the language taken from that very section of the IRS Code of Regulations:

"corporations . . . organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes . . . ."

The State Attorney General's Office, which has oversight responsibility for nonprofit charitable organizations in California, indicates that as of January 2001, there were over 81,000 charitable organizations registered with the California Attorney General's Registry of Charitable Trusts. Furthermore, over 20,000 charitable nonprofit organizations exist that are not legally required to register with the Attorney General; these include hospitals, schools and churches. And the numbers continue to grow - by as many as 500 new nonprofits a day, according to one staffer in the Attorney General's Office.