A History of the tax-exempt Sector: An SOI Perspective
The origins of the tax-exempt sector in the United States predate the formation of the republic. Absent an established governmental framework, the early settlers formed charitable and other "voluntary" associations, such as hospitals, fire departments and orphanages, to confront a wide variety of issues and ills of the era. These types of voluntary organizations have continued to thrive in the United States for centuries. In 1831, during his historic visit to the United States, Alexis de Tocqueville observed:
"Americans of all ages, conditions and dispositions constantly unite together. Not only do they have commercial and industrial associations to which all belong but also a thousand other kinds, religious, moral, serious, futile... Americans group together to hold fetes, found seminaries, build inns, construct churches, distribute books... They establish prisons, [and] schools by the same method... I have frequently admired the endless skill with which the inhabitants of the United States manage to set a common aim to the efforts of a great number of men and to persuade them to pursue it voluntarily."1
Voluntary associations comprised two distinct types of organizations—public-serving and member-serving.2,3 Early public-serving, or charitable, organizations included schools, churches and other voluntary organizations designed to provide services to the public. The popularity of voluntary charitable organizations in the United States, even in the midst of strengthening state and federal governments, suggests that perhaps these organizations, with their well-established structures and programs, were able to fill a gap in social welfare programs where the young government's efforts proved insufficient. Another suggestion is that many early Americans embraced charitable organizations over government programs because they feared "the rebirth of monarchy or bureaucracy."4
Please select this link to read the complete analysis on the Internal Revenue Service's historical website, as of Dec. 1, 2025.