The Chronicle of Philanthropy had an article entitled “Fewer Groups Got Charity Status in 2015, but Numbers Still High“.  It notes a slight reduction in 501(c)3 tax-exempt applications in 2015 of only 86,915.  This was in part because of a controversial move by the IRS to introduce a simple 1023-EZ form for groups with annual revenue of under $50,000.  The 1023-EZ is a 3 page long electronic form and since its introduction there has been an almost doubling of applications.  By the way the number of new US charities last year is equal to the total number of Canadian registered charities! With over 1.2 million 501(c)3s the US has about 50% more registered 501(c)3s per capita than Canada.  

According to  the Chronicle “The IRS decided on 92,653 501(c)3 applications last year. No action was taken on 5,681 of them, either because they were withdrawn by the applicant, they were not complete, or for other reasons. Fifty-seven applications were denied.”  The approval rate has gone from 94 percent from 82 percent in 2010.   This contrasts with the treatment in Canada.  As we noted in 2014 in an article entitled Is CRA making registered charity applications harder? here are the statistics from the Determinations Section of the Charities Directorate:

Decision Total                 (2012-2013)
Registrations                       2,060
Denials                                 283
Incomplete Applications    1,636
Withdrawals                         271
Abandoned                          206
Total Applications           4,456

Of the total number of Canadian applications only 46% were registered. The CRA intensively reviews charity applications before approval. There is a big difference between the 94% acceptance in the US and the 46% in Canada.  

The Chronicle notes “The higher rates helped clear a backlog of applications, but a study by the National Taxpayer Advocate suggested that many approvals were improperly granted. The advocate’s office, an independent entity within the IRS, reviewed 408 recent applications from 20 states and concluded that more than one-third should not have been approved.” [my emphasis]

The problem of lax US oversight is actually worse than we are stating because in the US churches, synagogues and mosques apparently don't have to apply for 501(c)(3) registration.  In Canada religious groups have to apply and demonstrate that their objects and activities are charitable in the same way as other charities need to do.  

It is unfortunate that our neighbour to the South does not have a better system for vetting charity applications.  Unfortunately, you reap what you sow.  Poor decisions today about tax-exempt status not only will be costly later on but will undermine the public's confidence in the charity sector.