Key Insights from the 2025 IRS Data Book
The recently released 2025 IRS Data Book is packed with critical trends and data for nonprofit leaders. Covering the latest fiscal year, the report goes beyond the numbers to highlight key compliance strategies that will help secure your organization's tax-exempt status. Here are the highlights you should know:Â
The Scope of the Nonprofit WorldÂ
The nonprofit sector is so vast that the IRS dedicates specialized resources strictly for its oversight. Key figures from the 2025 fiscal year include:
- 1.9 Million+: Recognized 501(c) organizations (out of over 2.06 million total tax-exempt entities).
- 1.8 Million: Tax-exempt returns processed by the IRS.
- 88.6%: The approval rate for the 145,202 new applications for tax-exempt status.
By the Numbers: The Nonprofit World
With millions of organizations operating nationwide, the IRS dedicates significant resources to monitoring the tax-exempt sector. According to the 2025 Data Book, there are now over 2 million tax-exempt entities and trusts. The sector continues to actively grow—the IRS approved 88.6% of the 145,202 new applications for tax-exempt status last year and processed nearly 1.8 million returns for existing organizations.
Tax-exempt status does not completely shield an organization from potential tax liability. In fact, nonprofits nationwide collectively paid $2.17 billion in unrelated business income tax (UBIT) in fiscal year 2025.
Audits and Examinations
The IRS took a close look at nearly 8,000 returns associated with tax-exempt organizations, employee retirement plans, government entities, and tax-exempt bonds in 2025. That figure includes audited examinations of:
- 889 Form 990, 990-EZ and 990-N returns
- 77 Form 990-T returns for UBIT
- 188 Form 4730 returns reporting excise taxes on charities and related individuals
- 77 Form 990-PF for Private Foundations, 1041-A, 1120-POL and 5227 returns
Audit Readiness Strategies
Whether triggered by a red flag or random selection, surviving an IRS audit comes down to proactive documentation and having the right advisory partner. To help ensure your organization is prepared, here are some suggestions:
- Maintain Contemporaneous Records: Accurate, year-round record-keeping saves immense time and is your best defense for helping achieving a clean, penalty-free audit.
- Document Key Policies: Back up your Form 990 claims by keeping written, updated policies on file for Conflicts of Interest, Document Retention/Destruction, Whistleblowers, and general governance.
- Leverage Meeting Minutes: Demonstrate diligent board oversight by clearly documenting the rationale behind executive compensation and strict adherence to conflict-of-interest policies (including noting any voting recusals).
What If You’re Audited?
Receiving an IRS information request or audit notice can create immediate concern for an organization’s leadership, but understanding the process can make the situation more manageable. A careful, well-organized response helps ensure documentation requests are addressed appropriately and the organization’s position is clearly presented. If the IRS ultimately issues a change letter, additional options may still be available.
Get Your Organization-Specific Answers
Strong financial stewardship and clear communication help nonprofits build trust and demonstrate the value of their work. Our nonprofit specialists provide insight to help organizations navigate challenges and support long-term goals. If your organization could benefit from additional guidance, connect with our team to continue the conversation.
