The Nonprofit FAQ

How are nonprofit organizations classified?

Michelle Schroeder wrote to ARNOVA-L (see http://www.arnova.org/listserv.php) on 8/18/1998 to ask: Is there a standard taxonomy of 501(c)3 nonprofit organizations (i.e. human service, youth service, arts, environmental)? If so, how does one obtain this taxonomy? Fred Lane, School of Public Affairs, Baruch College, City University of New York, replied: This is no more that a quick note to provide some more leads. There are two more that you should know about from the beginning, probably in this order: NTEE (National Taxonomy of Exempt Entities), probably available from Independent Sector's research division -- and probably what you are really looking for. Plenty of detail. UWASIS (older, from United Way), more services than organizational types, but not so far away. There was actually a book some years ago devoted to this. In addition, if you are prepared to think of the Internal Revenue Code as a taxonomy -- e.g., 501(c)3, 501(c)4, 501(c)6, etc. -- you could add it also. (There is a pointer to the IRS website discussing this question, and a listing of section 501's text, in this FAQ at http://www.nonprofits.org/npofaq/16/08.html.) John Connolly wrote on April 16, 2001: "Any discussion of classification systems for human services should include reference to The Taxonomy of Human Services developed by INFO LINE of Los Angeles and promoted/sponsored nationally by the Alliance of Information and Referral Systems." It is described at http://www.infoline-la.org/taxonomy.html where pricing and ordering information is also available. And Putnam Barber added: The Foundation Center and the IRS (and some others) use the NTEE (National Taxonomy of Exempt Entities); there's an annotated outline of the NTEE at http://foundationcenter.org/gainknowledge/grantsclass/. More generally, the "Model Nonprofit Corporations Act" developed by the American Bar Association for consideration by states proposes a three-part classification: public benefit corporations, mutual benefit corporations, and religious corporations. Public benefit corporations can only distribute assets to other public benefit corporations. Mutual benefit corporations can distribute assets to their own members (under certain conditions) as well as for public benefit purposes. Religious corporations must follow the rules of their governing bodies. (There is, of course, a lot more to it than this brief summary. The ABA published the Model Act in book form through Prentice Hall Law and Business in 1988.) The classification proposed in the model act has not been widely adopted. In 2006, the ABA published a draft of a revised model act that does not include the three-part classification included in the 1988 version. Nick Stengel added this further explanation on August 19, 1998: The National Taxonomy of Exempt Entities (NTEE) was written by the National Center for Charitable Statistics, formerly at Independent Sector and now at the Urban Institute's Center on Nonprofits and Philanthropy. It is a mixed notation system used by NCCS, the IRS, the Foundation Center, Independent Sector, and several major foundations. As a mixed notation system, it has the usual major categories of arts, education, environment, health, human services, public/societal benefit, international, religious, and mutual/membership benefit. It has three more levels of detail for a total of about 475 subgroups -- everything from hospitals to several types of shelters to services promoting the independence of blind people. The NTEE also separates supporting and operating organizations, which is particularly good for research when you don't want to be double counting money that flows within the nonprofit sector. The system is in its last stages of a major update which pared it down a little and enhanced the hierarchical structure. IRS files are coded according to NTEE, and they are going to abandon their old system of activity codes in favor of NTEE in January 1999. The new NTEE-CC (which stands for core codes) will be used for all 501(c) organizations. The NTEE-CC Manual is available through the "NTEE" link on the National Center for Charitable Statistics Website, http://nccs.urban.org/ Also, the new NTEE system has been crosswalked with the North American Industrial Classification System (NAICS). The NAICS system is the new federal classification system of all national accounts. It is replacing the Standard Industrial Classification (SIC) system as part of NAFTA. NCCS is cooperating with Census, BLS and OMB for analysis, by NAICS, of subsectors where nonprofits are a significant portion of the whole subsector (like continuing care retirement facilities or schools). Anyway, that's probably more than you wanted to know. The old system is on our website at http://nccs.urban.org and will be updated to reflect the changes early next month. The manual with definitions and crosswalks are still being reviewed by the IRS, however, and will not be ready until early September 1998. Reposted with additions September 9, 1998; 5/1/04; "Model Act" updated an link repaired, 8/24/06 -- PB