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In 2008, over 315,000 nonprofit organizations reported a revenue of $1.4 billion and held $2.5 trillion in assets. By 2011, the number of registered nonprofit organizations with the IRS had reached 1.6 million. Without public involvement, political debate, or formal procedures, the Internal Revenue Service—sometimes seemingly in an arbitrary manner—grants certain organizations special status, exempting them from taxes despite benefiting from public services funded by the tax base.
The vast majority of these organizations are categorized as 501(c)(3) entities, named after the IRS section that provides them with tax exemption. The process of obtaining and keeping 501(c)(3) status—or any of the numerous other 501 subcategories—is complex and intricate. In general, these organizations must not be aimed at self-enrichment or serving shareholders, must not engage in political activities, and must focus on charitable causes or contribute to societal welfare.
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However, many of these organizations rank among the wealthiest in the world, yet engage in far less charitable work than their private-sector counterparts. When Congress began granting exemptions under the 1894 Revenue Act, it targeted ‘religious, charitable, and educational’ organizations, and this tradition continues today. The list of the richest tax-exempt entities in the U.S. is largely dominated by institutions that operate under the assumption of altruism: churches, universities, and hospitals.
10. Churches
The Roman Catholic Church is widely regarded as one of the wealthiest organizations globally. In the U.S. alone, the Catholic Church is estimated to have an operating budget of $170 billion. For comparison, in 2012, Apple and General Motors each reported around $150 billion in revenue. The exact wealth of the Church remains unknown because, unlike other tax-exempt entities, religious organizations in the U.S. are not required to provide financial reports to the IRS. From Vatican City to St. Patrick’s Cathedral in New York, the Church holds some of the most valuable art and architecture in history. It runs a vast network of schools, universities, and hospitals funded by American taxpayers, yet it retains its nonprofit status.
While the Catholic Church is by far the largest and wealthiest, it is not alone. Any organization that meets the IRS’s broad and subjective criteria of a “church” automatically enjoys federal tax exemptions, including exemptions from taxes on investments and the need to report financials. Unlike organizations like the Red Cross, which undergo strict IRS scrutiny, churches are not required to apply for tax-exempt status. Additionally, every state and the District of Columbia grants churches exemptions from income and property taxes, meaning taxpayers effectively subsidize their local services, such as police and fire protection.
Ministers and clergy members enjoy significant financial benefits, including the ability to deduct rent, mortgage, home maintenance costs, utilities, and even cable bills. Despite their immense wealth, churches spend only a small fraction on actual charity. For example, the Church of Jesus Christ of Latter-day Saints allocated just 0.7% of its income to charity from 1985 to 2008. In contrast, the Red Cross devotes over 90% of its funds to direct social welfare services. A study by The Washington Post revealed that U.S. taxpayers subsidize churches to the tune of $82.5 billion annually. Additionally, some churches violate the conditions of their tax-exempt status by engaging in political activities, such as lobbying and electioneering.
9. Hospitals
Originally founded as a small charity after the Civil War, Children’s Hospital of Boston has grown into one of the wealthiest healthcare institutions globally. It generates $1.3 billion annually and holds $2.6 billion in investments, including stocks and real estate. Its fundraising efforts bring in $90 million each year. However, despite its enormous income, the hospital only spends $8 million annually—less than 1 percent of its revenue—on free medical care. Nevertheless, it is classified as a tax-exempt charity and receives a $40 million subsidy from taxpayers.
Children’s Hospital of Boston is far from unique. Prestigious, affluent hospitals are some of the most profitable nonprofits in the United States. Together, they allocate only a small portion of their wealth to free medical care, which is typically the justification for their tax-exempt status. While only 61 percent of for-profit hospitals were profitable in the 2000s, 77 percent of nonprofit hospitals reported profits after a decade marked by lucrative mergers, significant earnings, massive investment returns, and multimillion-dollar compensation packages for their CEOs.
8. Universities
In a harsh editorial, expert Pablo Eisenberg criticized the nonprofit sector, highlighting the growing concentration of wealth within a small number of exceedingly wealthy nonprofit organizations (NPOs) that were stockpiling vast amounts of money—and the political influence that such wealth brings. Eisenberg pointed to universities and their affiliated entities as prime examples of NPOs that focus their charitable activities on campaigns benefitting the already wealthy or upper-middle-class individuals. It's hard to distinguish between universities and hospitals, as many university hospitals are among the richest in the country. Recent data indicates that elite Ivy League institutions and their associated organizations dominate the list of the wealthiest tax-exempt organizations.
Harvard is arguably the most renowned university worldwide—and without question, the wealthiest. In 2008, the President and Fellows of Harvard College reported an endowment of $43.9 billion. Yale University followed with approximately $23.7 billion, and Stanford University came in third with $22.7 billion. Princeton University’s endowment was $16.3 billion, while the Massachusetts Institute of Technology had $12.9 billion. Columbia University and the University of Pennsylvania both tied with an endowment of $10.3 billion each.
7. YMCA
In 2012, a local Indiana newspaper published an extensive four-part series that questioned the tax-exempt status of the Muncie YMCA, a recognized 501(c)(3) charity. The report highlighted how the YMCA had scaled back its operations in the city's poorest neighborhoods, which it was meant to serve. The gym equipment in one of these underprivileged areas had gone nearly a decade without updates. Meanwhile, a brand-new, high-tech fitness center was opened in a wealthier part of town, creating competition with upscale health clubs that catered to affluent members who could afford expensive memberships. The established gyms in these areas, however, had to contend with taxes on their membership fees, unlike the tax-free YMCA.
For-profit health clubs across the United States have raised concerns over the tax-exempt status of local YMCA chapters. While it's unclear whether the business practices of these other Ys mirror the controversial actions of the Muncie, Indiana branch, one thing is certain: they are running businesses. After churches, hospitals, and universities, the YMCA ranks as one of the top 10 wealthiest charities in the U.S., with total revenue exceeding $6.6 billion—more than $605 million of which comes from government funding.
6. Goodwill
Goodwill, a well-known and highly regarded charity operating as a tax-exempt 501(c)(3) organization, is also a major business. In 2012, it generated $4.89 billion in revenue. A significant portion of that—$3 billion—came from sales at Goodwill's 2,700 secondhand stores, which have become iconic. The organization also secured $87 million in government grants. Each Goodwill store is independently owned, and some owners, along with regional CEOs, earn impressive salaries, with some reaching seven figures.
On the other hand, the disabled individuals that Goodwill highlights as part of its workforce in those secondhand stores often receive wages that are far below the minimum legal threshold. Goodwill exploits a Depression-era loophole known as the Special Wage Certificate program (Section 14(c) of the Fair Labor Standards Act of 1938), which allows nonprofit employers to pay disabled workers less than the federal minimum wage, offering instead 'a commensurate wage based on their performance.' As of now, Goodwill pays at least 7,300 disabled employees sub-minimum wages, while it spends millions of dollars on executive compensation, travel expenses, and retirement plans.
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5. The Smithsonian Institution
The Smithsonian Institution was founded through an act of Congress in 1846, following the bequest of both property and funds by John Smithson of England. His donation was meant to establish an 'institution for the increase and diffusion of knowledge among men.' Today, the Smithsonian operates 19 museums, nine research centers, and a zoo within Washington, D.C., and maintains 168 satellite museums nationwide. Its collection holds 136.9 million items, including works of art, historical objects, natural and physical science specimens (both living and nonliving), archival materials, and library resources.
An audit of the Smithsonian’s finances reveals that the institution employs a diversified investment strategy that includes equities, marketable alternatives, private equity, natural resources, real estate, U.S. government agency bonds, International Bank for Reconstruction and Development bonds, and cash equivalents. The financial records also show a complex network of split-interest agreements, perpetual trusts, annuities, and stewardship assets. The majority of its wealth is derived from private donations, government funding, and its sizable endowment.
How significant is the Smithsonian's financial status? According to its 2013 Form 990, the required financial disclosure form for nonprofits (excluding churches), the Smithsonian employs more than 7,000 individuals. It reported gross income exceeding $2 billion, including nearly $17 million in 'unrelated business income'—taxed revenue—as well as over $92 million in earnings from investments.
4. The American Bar Association
With close to half a million members, the American Bar Association, based in Chicago, stands as the largest trade organization for lawyers in the U.S. In 2009, an investment firm named ABA Retirement Funds, which manages over $1.5 billion in assets, attempted—unsuccessfully—to sue the government for tax-exempt status and to receive nearly $500,000 in refunds for taxes already paid on its profits.
As a business league, the American Bar Association is not subject to taxes. Its financial affiliate, ABA Retirement Funds, argued that it, too, should be tax-exempt, as its operations mirrored those of the ABA. ABA Retirement Funds outsourced the management of its highly profitable investment accounts to independent third parties, which allowed it to technically avoid running or managing the funds itself. The ABA, however, maintained it was an independent entity, separate from ABA Retirement Funds, despite the fact that the latter raised money for the ABA name, marketed and promoted retirement plans among law firms that employed ABA members, and shared both its board members and its mailing address with the ABA. According to the 2011 Form 990, the ABA earned approximately $10 million in both of the preceding years.
3. The NFL
2014 wasn't the best year for the NFL—unless you look at it from a profit perspective. By that measure, every year is a successful one for the National Football League. The NFL negotiates billions of dollars in media, promotional, and endorsement contracts for its teams. The league itself reported $326 million in 'program service revenue.' Commissioner Roger Goodell earned an impressive $44 million in 2013, while Executive Vice President for Media Steve Bornstein earned $26 million, and Jeff Pash, the league's general counsel, took home nearly $8 million.
The NFL's extraordinary salaries and profits were exposed through an examination of the league's IRS Form 990, where it asserts tax-exempt status under section 501c(6). The IRS specifies that organizations eligible for 501c(6) status include business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues, without exceptions.
If the inclusion of professional football leagues seems unusual, you're not alone. Journalists investigating how the NFL earned its own tax category uncovered that the league may have received assistance from influential figures. It spent $1.3 million on lobbying, paid over $7 million to the prominent Washington law firm Covington & Burling, and contributed more than $9 million to the New York law firm Paul, Weiss, Rifkind, Wharton & Garrison.
SEE ALSO: 10 Quirky Facts About The IRS
2. The NCAA
In 27 states, the highest-paid public employee is a college football coach, while in 13 other states it’s a college basketball coach. In Minnesota, both the basketball and football coaches share the title. In the remaining states, the highest earners are college presidents, deans, and chancellors. On top of their multimillion-dollar base salaries, coaches also receive substantial “additional compensation” from deals such as apparel contracts, media appearances, and fundraising.
As an entity promoting “amateur sports competition,” the National Collegiate Athletic Association (NCAA) is classified as a tax-exempt 501(c)(3). In fiscal year 2013, the NCAA recorded its third consecutive year of a surplus exceeding $60 million. The organization, which governs athletics for 1,281 colleges and universities, reported net assets at year-end of $627 million—double that of 2007. With total revenue around $913 million, it faced expenses of $852 million, $524 million of which was allocated to Division I schools and conferences. A substantial $681 million of its profit came from a multimedia and marketing rights deal with CBS and Turner Broadcasting for the Division I men’s basketball tournament.
1. The Susan G. Komen Foundation
The Susan G. Komen Foundation was established by the sister of Susan G. Komen, who passed away from breast cancer at the age of 33 in 1982. Since its founding, the organization has raised over $1.9 billion for breast cancer research, making it the largest and most financially successful nonprofit solely focused on finding a cure for the disease. The foundation (and its Race for the Cure event) is so closely associated with breast cancer research that if you’ve bought something pink in support, some of that money likely went to Komen. However, in recent years, the foundation has faced significant backlash from even its own supporters for drastically reducing the portion of its revenue directed toward actual cancer cure research. In 2011, only 15 percent of its revenue went directly to research, a dramatic decline from 28 percent in 2008, despite a $100 million increase in revenue, reaching $420 million. Much of the money, however, was allocated for education and cancer screening programs.
The foundation’s stance on key issues has sparked further controversy. It stirred up significant reactions within scientific, medical, and donor circles when it issued a statement denying the well-documented connection between the chemical bisphenol A (BPA) and breast cancer. BPA, which is found in everything from receipts to the inner linings of cans, has been the subject of over 130 scientific studies that overwhelmingly suggest the chemical can promote the development of breast cancer and even cause healthy cells to behave like cancer cells.
Many of Komen’s largest corporate backers—including Coca-Cola, General Mills, Georgia-Pacific, and 3M—are heavily invested in BPA and lobby for its continued use. The foundation's pink water bottles are made from a polycarbonate material containing BPA. Proponents of BPA, such as the American Chemistry Council, have cited Komen’s statement to defend its ongoing use. Furthermore, Komen has faced criticism for spending over $1 million to sue smaller charities, straying from its nonpolitical stance by aligning with pro-life organizations, and appointing a Republican CEO who supports GOP candidates and causes.
