Nonprofit Organizations

New Law Brings Overdue Changes to Nonprofit Tax Filings

July 18, 2019  • Cinthia Schuman Ottinger & Ashby Jong Henningsen

In a show of unity rarely seen in the nation’s capital, President Trump recentlysigned into law the Taxpayer First Act (H.R. 3151), a comprehensive IRS reform bill enacted by lawmakers who normally don’t see eye to eye. In the words of Rep. John Lewis, “We pushed aside politics, and we put the taxpayers first.”

Among the many facets of this legislative milestone, is a critical provision long promoted by the Aspen Institute: mandating the electronic filing of nonprofit tax returns (IRS Form 990) and the release of this information by the IRS for free, in an open, machine-readable fashion.

Most nonprofits will have to file electronically in 2021.

For years, those who wished to understand the details of America’s vast nonprofit sector were stymied by a costly, head-scratching process. Static images of the nonprofit tax forms – which contain a treasure trove of information and unlike individual tax forms must be made available to the public by law – were sold by the IRS for the hefty sum of over $2,000 for a year’s worth of returns. Once purchased, it took millionsof dollars to convert the images into searchable, computable data – even for forms that were electronically filed!

The whole, inefficient “system” left the nonprofit sector with limited access to critical data. Form 990s contain vital details on the missions, governance, and finances of America’s nonprofit organizations, which together account for over 10% of the country’s private sector employment and over 5% of GDP. Data on this robust and indispensable segment of American society is needed to grasp broad trends in nonprofit financial health, enhance donors’ trust, improve accountability, and give nonprofits themselves helpful facts to inform strategy and development.

This state of affairs led the Aspen Institute’s Program on Philanthropy and Social Innovation to detail the urgent need for “open” Form 990 data in a 2013 report written by Beth Noveck and Daniel Goroff and funded by the Bill & Melinda Gates Foundation, Information for Impact: Liberating Nonprofit Sector Data. Yearsof advocacy by the Institute and its partners – and legal action by open data guru Carl Malamud followed. Electronically filedForm 990s – now approximately 65% of all submissions – were released in a machine-readable format by the Internal Revenue Service in June 2016.

“We pushed aside politics, and we put the taxpayers first.”
— Rep. John Lewis

Today, we see how even this limited source of open data is proving to be invaluable. Researchers throughout the country are now mining previously inaccessible data with great results, helping to further understanding of giving trends and patterns, advance nonprofit board oversight, and improve donor access to information on the needs and activities of the charitable sector.

Outside of academic research, open 990 data offer a crucial tool for the public-at-large to better understand the nonprofit landscape. ProPublica’s new Nonprofit Explorer provides summaries of three million nonprofit tax returns and allows for full text searches of e-filed forms. This and similar tools are invaluable for citizens looking to understand the financial details and social impacts of nonprofit organizations.

It was this vision of a more informed and effective social sector that spurred the Aspen Institute’s Program on Philanthropy and Social Innovation (PSI) to push for universal electronic filing of the Form 990 data alongside its partners, Candid, the Urban Institute’s Center for Nonprofits & Philanthropy, the Lilly Family School of Philanthropy at Indiana University, and Johns Hopkins Center for Civil Society Studies.

The mandatory Form 990 e-filing provision goes into effect beginning the tax year after its enactment, meaning most nonprofits will have to file electronically in 2021.As this revolution in nonprofit data unfolds, PSI will continue to monitor the many ways in which open data empowers nonprofits and philanthropy.