Encouraging Charitable Efficiencies: More Charitable Than Discouraging Nonprofits

The nonprofit sector is a sector of innovation, creativity, and people working for the common good. More than 14 million Americans - 11 percent of American workers - are employed by or volunteer full-time in the nonprofit sector; more than the financial industry and the auto industry combined.

In a recent article entitled, "Charities Rise, Costing U.S. Billions in Tax Breaks," Stephanie Strom of the New York Times raises concerns about an out of control nonprofit sector that is flooding the IRS with frivolous new applications to establish new public charities that will deprive the federal budget of billions of dollars.

There are plenty of reasons for concern about the federal budget, but singling out the nonprofit sector in this way overlooks some important points.

Not only is this sector working on innovative ways to make the world a better place and connecting people with a sense of common good, nonprofits also contribute billions in tax revenue through employee payroll alone.

Moreover, in an age of dwindling public resources, when the role of government in addressing social problems is feverishly debated, the American public is taking matters into their own hands. This heightened wave of community activism, volunteerism and social entrepreneurship needs to be celebrated, not discouraged. In a time when Facebook and Twitter make broadcasting your ideas and passions part of daily life, we should not be surprised that communities are finding new ways to match their values with their time and pocketbooks.

Is there potential waste in creating thousands of new nonprofits every year? Undoubtedly yes, but the problem is not people's motivations. The problem is that not enough people know about the alternatives to establishing nonprofit organizations; alternatives like fiscal sponsorship and donor advised funds that exist to create greater efficiencies and cost-effectiveness for charitable activities.

If you're raising funds for your favorite cause, you don't have to go through the hassle of establishing and managing a brand-new nonprofit. Instead, talk to your local community foundation or a grantmaking intermediary like Tides to create a donor advised fund or a collective giving fund.

If you're looking to fill a need in your community, look to fiscal sponsorship as a solution instead of creating a brand-new nonprofit. Fiscal sponsors, such as Tides, provide their projects with all of the financial, human resources and governance infrastructure of a well-managed nonprofit, allowing activists and social entrepreneurs to focus their attention on the content and mission of their work, not the administrative and regulatory details.

If we want to create greater capacity for the IRS to monitor nonprofit activity, improve efficiency in the charitable sector, and continue to support the social innovation and dedication of the American people, we need to raise the visibility - and availability - of these alternative structures.

The nonprofit sector and the IRS could be well-served by partnering to create a referral pipeline between those with passion, ideas and access to resources and those organizations able to manage and administer charitable activity most effectively.