Increasing Nonprofit Transparency is Essential to Our Democracy

May 23, 2018  • Nicole Corea & Matt Connolly

The US is one step closer to moving nonprofit data into the 21st century, thanks in part to the Aspen Institute Program on Philanthropy and Social Innovation (PSI). This spring the House of Representatives passed a bill requiring the electronic filing of nonprofit tax returns, known as Form 990. The bill would also require the IRS to release this information for free as open, machine-readable data. This was accomplished through the efforts of the Nonprofit Data Project, an initiative led by PSI.

“Over 60 percent of nonprofits across the country do file electronically,” said Cinthia Schuman Ottinger, deputy director for philanthropy programs at PSI. “But there is still a significant portion filing by paper, so we don’t have a picture of the full nonprofit sector through the data.”

The bill will enable regulators to more easily identify potential fraud and address sham charities.

Form 990s reveal the inner workings of the multibillion-dollar nonprofit industry. They contain information on the finances, governance, and missions of organizations across the country. Until recently, these forms were sold by the IRS as non-searchable images, greatly limiting their potential. PSI worked with Guidestar, the Urban Institute, Lilly Family School of Philanthropy at Indiana University, Foundation Center, and Johns Hopkins Center for Civil Society Studies to push for more expansive “open” nonprofit data.

Schuman Ottinger noted that all Americans benefit from this knowledge. The bill will enable charity regulators to more easily identify potential fraud and quickly address sham charities. Open data will also help nonprofits make better decisions as they will be able to analyze past trends.

The bill was informed by PSI’s report Information for Impact which detailed the benefits of open data such as increased transparency, reduced fraud, improved speed and accuracy, and opportunities for innovation. This bipartisan measure was sponsored by Representatives Mike Kelly and Stephanie Murphy. It now moves to the Senate where it has previously received support from lawmakers on both sides of the aisle like Chuck Grassley and Ron Wyden. Schuman Ottinger is optimistic about its passage.

“I think there are no substantive blocks toward it,” she said. “This is a common-sense measure not only to increase transparency, but also save taxpayer money.”

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