National Taxonomy of Exempt Entities

"The National Taxonomy of Exempt Entities (NTEE) system is used by the IRS and NCCS to classify nonprofit organizations. It is also used by the Foundation Center to classify both grants and grant recipients (typically nonprofits or governments). NCCS and the IRS use the NTEE-CC system, described below, while the Foundation Center uses a slightly different version with more codes, as well as 'population/beneficiary' codes to indicate the type of population served and 'auspice' codes to indicate religious or governmental affiliation. The original NTEE was developed by NCCS during the 1980s 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: facilitates the collection, tabulation, presentation, and analysis of data by the types of organizations and their activities; promotes uniformity and comparability in the presentation of statistical and other data collected by various public and private agencies; provides better quality information as the basis for public policy debate and decision-making for the nonprofit sector and for society at large. In the mid-1990s, the IRS decided to begin classifying new organizations using the NTEE system. The 'IRS determination specialists' - the individuals who decide whether or not an organization is eligible to receive federal tax exempt status - would classify the organizations based on descriptive data in the organizations' applications for recognition of tax-exempt status (Forms 1023 and 1024). Before beginning, they requested a simplified version of the NTEE to ease classification and to provide a better fit into the North American Industry Classification System (NAICS), the new federal government economic classification system that replaced the Standard Industrial Classification (SIC) codes in 1999. The National Taxonomy of Exempt Entities-Core Codes (NTEE-CC) was created to meet this need. Designed by a team of experts, the NTEE-CC 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 NTEE-CC serves as the best instrument for tax-exempt status determination, NAICS linkage, and nonprofit organizational classification. Unlike the system used the Foundation Center, the NTEE-CC system eliminated the so-called Common Codes that permitted the 4th character of the NTEE to indicate if an organization primarily serve any of a dozen or so functions other than direct service. These categories include: alliances, advocacy, management and technical assistance, research, policy analysis, fundraising and other types of support for other nonprofit organizations. At the same time, the NTEE-CC system added 3-character categories - all in the 01-19 range within each major group (e.g., A01, B01, A19, B19, etc.) - for organizations that fulfilled these specialized functions."