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Is It Too Easy To Start A Nonprofit?

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In recent years, more and more social-impact professionals have tuned into the argument that there are simply too many nonprofits operating inside of the U.S. In a 2013 article for Slate, Ken Stern—President of Palisades Media and former CEO of National Public Radio (NPR)—argues that we aren’t doing a good job of defining what a nonprofit should be, and regulating how they function.

The IRS specifies that 501(c)(3) organizations may not profit any private shareholder or individual nor operate for the benefit of private interests; however, many professionals across the sector believe that nonprofits should also clearly benefit the public. Well, when you look at certain arts nonprofits or private schools, specifically, it can be hard to see how these organizations provide a public service.

As Stern writes:

"It’s hard to understand why some organizations receive charitable status and others do not. One of our core, and fairly obvious, organizing principles is that a charity must dispense a public service rather than a private good. But many of our most prominent civic charities would struggle to meet that basic test. Tickets to symphonies, operas, and the like are often so prohibitively expensive that their primary services effectively exclude everyone but the well-off."

Having too many registered nonprofits is not simply a problem a quantity—and by extension, quality—it's also an economic issue. The consequences of the IRS approving companies as 501(c)(3) organizations leads to many economic costs, such as lost income tax and property tax revenue, tax deductions taken by wealthy donors, and greater competition for donations. All of these can affect the operations of real charities, Stern argues.

What do you think? Are you a social-impact professional who is annoyed by the sheer volume of nonprofits that do not support the great good? Let us know on LinkedIn or Instagram.

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