August 03, 2010

Have 100,000 Nonprofit Groups Failed in the Recession?

Remember when Paul Light, the New York University scholar, predicted that 100,000 nonprofit groups would fail in the next two years

Well, nearly two years have passed since he made that statement in November 2008. Was Mr. Light right?

Bob Ottenhoff, chief executive of GuideStar, which collects information on charities, says that Mr. Light told him he has been haunted by his prediction ever since, because it's so hard to quantify. 

But Mr. Ottenhoff recently tried to get a sense of just how many charities have been forced to close because of the recession. He concludes that Mr. Light's prediction is "not only possible but probable."

Roughly 30,000 to 60,000 disappear from the IRS's files each year for unspecified reasons; presumably, most of them have gone out of business, says Mr. Ottenhoff.

In three surveys conducted by GuideStar last year, a consistent 8 to 10 percent of charities reported that they were in "imminent danger" of closing because of financial reasons.

Finally, despite a recent reprieve by the IRS, many small organizations are still in danger of losing their tax-exempt status because they failed to file required informational tax returns over several years.  

Mr. Ottenhoff says that Mr. Light's prediction stands up -- but the GuideStar leader also notes that between 45,000 and 60,000 new charities are approved by the IRS each year.

Do you think the recession has wiped out many charities?