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Charitable organizations have played a critical role in this country since it was founded. However, obtaining meaningful information about a group of organizations so diverse yet so vital to society becomes impossible without a classification system that groups similar entities by purpose, type, or major function. The National Taxonomy of Exempt Entities (NTEE) offers a definitive classification system for nonprofit organizations recognized as tax exempt under the Internal Revenue Code. These charitable organizations are exempt from federal taxes because of their religious, educational, scientific, and public purposes. The broad range of their activities includes health, human services, arts and culture, education, research, and advocacy. The use of NTEE is key to illuminating the diversity of the nonprofit sector. The NTEE was developed by NCCS during the 1980’s with the collaboration of major nonprofit organizations. According to Russy D. Sumariwalla, one of the principal developers of the system, the use of such a system:
National Taxonomy of Exempt Entities - Core Codes (NTEE-CC) The IRS, which classifies organizations based on descriptive data in the organization application for recognition of tax-exempt status, requested a simplified version of the NTEE to not only increase efficiency but also provide a better fit into the North American Industry Classification System (NAICS), the new federal government economic classification system that will replace the Standard Industrial Classification (SIC) codes in 1999. The National Taxonomy of Exempt Entities - Core Codes (NTEE-CC) was created to meet this challenge. Designed by a team of experts, the new NTEE-CC now includes approximately two-thirds, or about 400, of the 645 categories in the original NTEE. Though the majority of the differences in the NTEE-CC are a result of collapsing lesser-used codes, improvements were also included. With its ease of use and consistent hierarchical logic, the new NTEE-CC will serve as the best instrument for tax-exempt status determination, NAICS linkage, and nonprofit organizational classification. Using the NTEE-CC The NTEE-CC classification system divides the universe of nonprofit organizations into 26 major groups under 10 broad categories as follows:
Within the major groups, organizations are broken down according to logical divisions (decile level codes) and subdivisions (centile level codes). Organizations that exist across all or most of the 26 major groups are treated separately and are given what is known as "common codes".
Major Groups. The major groups represent broad subsectors, such as health, education, and youth development, of the charitable organization universe. For descriptions, see the Definitions section. Decile Codes. Decile codes subdivide organizations in the major groups by specific activity areas, such as Higher Education within the Education major group. See Definitions section for a full listing of decile codes. Centile Codes. Centile codes subdivide organizations in the decile codes into specific types of organizations. For example, junior colleges, undergraduate colleges, and universities have separate centile codes within Higher Education (B40). See the Definitions section for a full listing. Common Codes. Common codes represent activities of organizations, such as research, fundraising, and technical assistance, which are common to all major groups. The seven common codes used are:
Common codes differ from other codes in that a fourth-digit is available. This digit, used within the common code framework, indicates a kind of organization within a group of organizations. For example, B114 would designate college and university fundraising under B11 Monetary Support. The "4" was chosen from the decile level, B40 Higher Education Institutions. Conversely, high school booster clubs would be classified as B112 (B11 Monetary Support - Single Organization plus B20 Elementary, Secondary Education, K–12.) Another example of coding is classifying the tax-exempt "St. Christopher Hospital" as E22; the major group is E for Health, and the decile and centile codes (22) designate a General Hospital. A professional society called "The Learned Society of Landscape Photographers" would be given an NTEE-CC code of A034; the major group is A for Arts, the common code 03 designates the organization as a professional society and the fourth digit (4) signifies visual arts organizations. An organization that raises funds for a specific organization, such as a single hospital ("Friends of St. Christopher Hospital") receives a code of E112; an organization that raises funds for several hospitals ("Friends of Memphis Hospitals") receives a code of E122. When a coder knows the appropriate major group category for an organization but is not sure of decile or centile designation, the decile and centile codes of 99 should be assigned. 1999 and Beyond The SIC system is being replaced in 1999 with the North American Industry Classification System (NAICS) that combines the economic classification systems of the United States, Canada, and Mexico into one system. At the same time, the IRS plans to classify exempt organizations using both NAICS and NTEE-CC. This will not only improve the classification of nonprofit organizations, but for the first time, enable researchers to directly compare the nonprofit sector and for-profit entities. Once in place, the new IRS codes based on both the NTEE and NAICS will expand the usefulness of the system and prove its value not only as a common language of charitable organization classification but also as a tool for of cross-sector economic analysis. References Hodgkinson, Virginia A., Murray S. Weitzman, John A. Abrahams, Eric A. Crutchfield, and David R. Stevenson. Nonprofit Almanac 1996–1997: Dimensions of the Independent Sector. San Francisco: Jossey-Bass Publishers, 1996 Kaplan, Ann E. (Ed.). Giving USA, 1997: The Annual Report on Philanthropy for the Year 1995. New York: AAFRC Trust for Philanthropy, 1997. Kovacs, Ruth and McLaughlin, Ben (Eds.) Grants Classification System Indexing Manual with Thesaurus. New York: The Foundation Center, 1995. Stevenson, David R., Pollak, Thomas H., Lampkin, Linda M., Pettit, Kathryn L.S., and Stengel, Nicholas A. J. State Nonprofit Almanac 1997: Profiles of Charitable Organizations. Washington, DC: The Urban Institute Press, 1997. Sumariwalla, Russy D. "Toward a National Taxonomy of Exempt Entities" prepared for INDEPENDENT SECTOR, March 1986.  Comments
and questions may be sent via email to NCCS@ui.urban.org. Return to Center on Nonprofits and Philanthropy |