The number of charities and foundations registered with the Internal Revenue Service fell by 16 percent in 2011, mostly because more than 272,000 organizations lost their tax-exempt status after failing to follow the law by filing informational tax forms.
New figures released by the tax agency show that the number of groups classified under Section 501(c)(3) of the Internal Revenue Code totaled nearly 1.1 million in 2011, down from nearly 1.3 million in 2010.
Even without the IRS’s action to strip so many groups of tax-exempt status, however, the latest figures signal a continued slowing in the number of charities created in the United States.
The tax agency said 55,319 groups applied for charity status in 2011, down 7.7 percent from 2010 and 35 percent from 2007, when 85,771 groups applied.
The drop followed years of rapid growth. The number of charities more than doubled from 1995 to 2010, increasing from 626,000 to nearly 1.3 million. From 2001 to 2010, the number of charities grew by more than 48 percent, from 865,096.
The sweeping loss of tens of thousands of groups from the rolls came after Congress passed a law in 2006 that gave organizations with an annual revenue of $25,000 or less three years to file informational tax forms.
It took the IRS time to put the law into effect, in part because it wanted to give charities ample time to get their forms to the tax agency.
But in June, it announced the names of all the organizations that had failed to file the required documents. As a result, donors to those organizations cannot claim a charitable deduction for their gifts.
Despite the drop in the number of groups seeking charity status, a bigger share of groups is winning approval. The IRS says a change in its procedures is making it easier for groups to provide the information they need to regulators. Of the organizations that sought charity status in 2011, 90 percent, or 49,677, were approved and fewer than 1 percent were rejected.
In 2010, 82 percent were approved.
Another reason for the decline in the number of organizations with charity status is the sharp drop in the number of wealthy people creating foundations.
Grant makers are counted within the pool of 501(c)(3) organizations, and very few have been started lately.
Just 950 new foundations were created in 2009, the most recent year for which data are available, according to the Foundation Center, in New York. That’s down from a peak of 6,400 new foundations in 2000.