A Form That Functions

Thanks in large part to the Institute's Program on Philanthropy and Social Innovation and its partners, a new federal law promises to shed greater light on the country's vast nonprofit sector.

Until recently, those who wished to understand the details of the nonprofit sector were stymied by a costly, headscratching process. That’s because Form 990s–the annual tax return that the IRS requires nonprofits to file and one of the best sources of information on these groups–were almost completely inaccessible.

That is changing as the open-data requirements of the Taxpayer First Act go into effect. Lawmakers came together for common-sense reform and passed a bipartisan measure, supported by both houses of Congress and signed into law by President Donald Trump on July 1, 2019.

The journey to this transformative moment was years in the making. When PSI’s Nonprofit Data Project began its work, nonprofit tax forms were sold by the IRS for thousands of dollars and were provided as static, non-searchable images via DVDs. What’s more, it cost the buyer millions of dollars and additional time to convert the images into searchable, computable, useful data–including for forms that were electronically filed.

To better understand this inefficient system, PSI, working in partnership with the nation’s leading nonprofit data groups, commissioned research with funding from the Bill & Melinda Gates Foundation. The researchers interviewed dozens of experts from nonprofits, businesses, and government, including the IRS. The resulting 2013 report, Information for Impact: Liberating Nonprofit Sector Data, detailed the effects of antiquated IRS processes and the benefits of making data accessible. The report was a galvanizing tool for developing consensus and making a case for change.

Under the law, nonprofits must file their tax returns electronically, and the IRS must release the returns to the public in a searchable format. Researchers, nonprofits, and journalists are now mining previously inaccessible data to shed light on such issues as nonprofit hospitals’ treatment of the poor, charitable giving trends and patterns, and the outcomes of nonprofit mergers. The public can now look forward to more-helpful nonprofit information and to increased transparency, reduced fraud, and greater innovation.

Work remains to be done as PSI collaborates with partners to address the law’s implementation. The journey of PSI’s nonprofit data efforts demonstrates how solid research combined with persistent advocacy and collaboration among organizations and policymakers can lead to enormous impact–not just for nonprofits but for the people and communities they serve.