Early nonprofits were generally immune from such politics and were rarely cash cows that corrupt legislators could plunder. Swamped with charter applications from churches, libraries, cemeteries and societies for the advancement of beet sugar, silk, viticulture and other entities, state legislatures soon streamlined their chartering processes, ultimately creating general incorporation laws that allowed nonprofits to simply fill out a few forms and pay a small fee. The United States soon became a “nation of joiners,” where voluntary associations proliferated and addressed problems that were the province of governments in other countries.
Facing accusations of corruption and favoritism, state governments slowly extended the general incorporation principle to businesses. Although special chartering persisted into the 20th century in some states, by the late 19th century most businesses in most states obtained charters under general incorporation laws (especially those of New Jersey and later Delaware).
By World War I, several hundred thousand business corporations were active in the U.S. A century later, there are millions of business corporations and the nation rightly prides itself on the speed and ease with which businesses can form and incorporate.
Now, however, it is the nonprofit sector that appears to be subject to partisan politics and bureaucratic bungling. Nonprofits can incorporate as quickly, easily and cheaply as ever, but that is of little use if the IRS can harass them or simply delay their 501 (c) applications to be exempted from taxes.
Many nonprofits rely on donations, which are difficult to obtain until tax-exempt status is officially granted. Others are only worth forming or operating if they are tax exempt.
Yet the IRS can take as long as a year to make a decision on routine 501 (c) (3) applications (for nonprofits providing religious, educational, charitable, scientific, literary and other specific services).
That means it took less time to obtain tax exemptions, which were built into many early charters, in the 18th century. Unlike early state governments, the IRS faces no direct competition and apparently doesn’t fully appreciate the services that nonprofits provide the American people.
Robert E. Wright is the Nef Family Chair of Political Economy at Augustana College in South Dakota and the author of “Corporation Nation,” which will be published in December by the University of Pennsylvania Press.