This explanation is from the web site of the National Center for Charitable Statistics:

"Nonprofit organizations cover a wide range of activities, services, and programs. Without a classification system that groups similar charities by purpose, type, or major function, it is difficult to understand the work of the nonprofit sector.

The National Taxonomy of Exempt Entities (NTEE) is a definitive classification system for nonprofit organizations recognized as tax exempt under Internal Revenue Code 501(c)(3). The system, developed by the NCCS with the guidance of leading nonprofit scholars and practitioners, is used by the IRS, as well as INDEPENDENT SECTOR, the Foundation Center, AAFRC Trust for Philanthropy, and many grantmakers, foundations, researchers, and others working with nonprofit organizations."

For more info, click here...