An Introduction to the Nonprofit Sector


As a law student with a desire to help and work with nonprofit organizations, I began working as a legal assistant with the NEO Law Group last summer. While I still have much to learn about the legal issues facing nonprofits, thus far, I have been most intrigued by the sheer size, scope, and importance of the sector.

According to the Urban Institute, an estimated 2.3 million nonprofit organizations operate in the United States. Of those, approximately 1.2 million are currently registered with the IRS. This number disparity is largely due to churches and other religious organizations, which receive automatic exemption and are not required to report to the IRS. It is felt that if religious congregations were required to receive approval from the government in order to become incorporated or exempt, the government could exert a significant amount of control over religion, thereby violating our treasured principle of separation of church and state.

One common misconception about nonprofits is that the term nonprofits refers only to 501(c)(3) charitable organizations. However, there are many other types of tax-exempt organizations including:

  • 501(c)(4) civic leagues and social welfare organizations,
  • 501(c)(5) unions,
  • 501(c)(6) business leagues,
  • 501(c)(7) social clubs, and
  • 527 political organizations, including political action committees (PACs).

In the last two years, the IRS has revoked the tax exempt statuses of roughly 450,000 organizations for failure to file an annual information return with the IRS for three consecutive years. Of those revoked, only about 16,000 organizations have reapplied for exempt status. The vast majority of those organizations that have not reapplied have likely discontinued operations.

Despite the label "nonprofit," nonprofit organizations can charge fees, generate other revenues, and make substantial profits. However, unlike their for-profit counterparts, they generally do not have owners and do not exist to distribute their profits to their members or directors.

Nonprofits also employ 1 in 10 workers in the United States. The workforce within the sector is larger than the finance, real estate, and insurance workforces combined. Here are some additional facts about the size and scope of the nonprofit sector:

Nonprofit sector pic1

(From Urban Institute: Nonprofit Sector In Brief-


An examination of nonprofit employment trends during the decade of 2000 to 2010 demonstrates how dynamic the nonprofit labor market is. During the decade, the nonprofit sector grew steadily at a rate of 2.1 percent, while the for-profit sector lost jobs at a rate of negative 0.6 percent. This difference is especially interesting in light of the fact that between 2000 and 2010, nonprofit employment grew every year despite two recessions.

Nonprofit sector pic2

(From Nonprofit Economic Data Bulletin #39-


84 percent of all nonprofit jobs in the U.S. exist in three key fields: health care, education and social assistance. Heath care represents the majority of nonprofit employment, accounting for over half (57 percent) of U.S. nonprofit jobs. For an in-depth look at the types of fields, see the following chart:

Nonprofit sector pic3

(From Nonprofit Econimc Data Bulletin #39-


The nonprofit sector promotes innovation, artistic and religious freedom, health, charity, democracy and entrepreneurship. Not only do nonprofit organizations make positive differences in the U.S. by providing goods and services in areas where government and the market have left a gap, but also by providing employment to millions of workers every year. I look forward to continuing to learn about nonprofits, and how I can make a difference in a sector that is so vital to the well-being of our communities.