A Form that Functions

December 5, 2019  • Cinthia Schuman Ottinger & Anu Kumar

Thanks in large part to the Aspen Institute 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. From promoting health, education, and the arts to strengthening spiritual life and US democracy, nonprofit organizations play a crucial role in American civic life. Until recently, however, those who wished to understand the details of this vital 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’s due to change, however, when the open-data requirements of the Taxpayer First Act (H.R. 3151) go into effect. The public can now look forward to more helpful nonprofit information and to increased transparency, reduced fraud, and greater innovation. Under the law, nonprofits must file their tax returns electronically, and the IRS must release the returns to the public in a machine-readable—that is, searchable—format.

Consider the benefits of open data to a donor or the leader of a charity trying to analyze nonprofit services in her region. Examining one nonprofit at a time wouldn’t easily show where there are gaps in services, or how certain types of nonprofits fare compared with others. But with searchable Form 990 data, it is easier to gather this information and use it to inform planning and strategy. State charity regulators also benefit from open data: officials can locate potential problems and root out fraud.

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 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, by Beth Noveck and Daniel Goroff, 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. It was not long before recommendations for open Form 990 data appeared in executive branch and legislative proposals, including President Barack Obama’s fiscal year 2014 budget, former GOP Representative David Camp’s influential tax-reform draft, and a Government Accountability Office report recommending that Congress expand electronic filing of nonprofit tax forms to strengthen oversight and compliance. Then open-data guru Carl Malamud took legal action and won a case in federal court. As a result, in June 2016, the IRS for the first time released electronically filed Form 990s—approximately two-thirds of all 990s—in an open format to Amazon Web Services.

This historic step was only a partial solution, however. PSI pushed forward. Working in collaboration with groups such as Candid (formerly GuideStar and Foundation Center), the Lilly Family School of Philanthropy at Indiana University, Johns Hopkins Center for Civil Society Studies, the Urban Institute’s Center for Nonprofits and Philanthropy, and the National Association of State Charity Officials, PSI pressed the federal government to open a window onto as much nonprofit activity as possible.

These efforts finally bore fruit when 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.

Today, it’s clear that even a limited source of open 990 data has proved to be invaluable. 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.

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.

Cinthia Schuman Ottinger is the deputy director for philanthropy programs at the Institute’s Program on Philanthropy and Social Innovation. Anu Kumar is the fall 2019 William Randolph Hearst fellow with PSI.