Two weeks ago, the Internal Revenue Service (IRS) released data that could transform analysis of the nonprofit sector. The release might not have registered with casual observers; to be fair, the datasets contain information that has already been freely and publicly available. But this is a game-changer for researchers because the IRS has released nearly complete Form 990 data for most nonprofit organizations in machine-readable, ready-to-analyze format.
Besides being a godsend for researchers, the IRS data release will promote more effective oversight of the sector and will enable the development of apps and analysis tools that will stimulate innovation. However, while open-data advocates in the nonprofit sector are rejoicing at this news, they are also working on the next steps toward improved openness and transparency.
Ten years ago, accessing this volume of data electronically would have been unthinkable. The IRS only began accepting electronically filed returns in 2004; in 2006, the IRS began requiring the largest nonprofits (organizations with $10 million or more in assets and file more than 250 IRS forms of any kind, including W-2s for their employees) to “e-file” Form 990 each year. That same year, the IRS instituted Form 990N, the “e-Postcard,” which the smallest nonprofits (those with less than $50,000 in gross revenues) must file electronically.
However, medium-sized nonprofits, including most organizations that are required to file Forms 990 and 990-EZ, face no e-filing requirements. Nevertheless, about 60 percent of all tax-exempt nonprofits filed their returns electronically in 2015, and the percentage of e-filers is projected to grow. Indeed, research by the National Center for Charitable Statistics shows that most charities—even the smallest ones—use paid preparers who are ready and willing to assist those who wish to e-file.
If these trends persist, future IRS data releases will cover even more 990-filing organizations, making the datasets even more useful to researchers and policymakers.
The increased prevalence of e-filing would also make it easier for state governments to register nonprofit organizations, which would ease the burden on nonprofit entrepreneurs and promote data sharing across state boundaries. The Single Portal Initiative, which aims to standardize state reporting requirements for fundraising organizations and to create a single website that nonprofits can use to register and file reports, is one such effort. The initiative is led by state government officials, who recognize that oversight and regulation of their state’s nonprofit organizations would be much easier with machine-readable data.
The IRS’s recent decision to release machine-readable 990 data is one of many policy changes that would improve access to 990 data and stimulate research on the nonprofit sector. And as the percentage of e-filing organizations continues to increase, the data will become all the more valuable. This is why open-data advocates in the nonprofit sector continue to push for mandatory e-filing of required IRS forms and to support the Single Portal Initiative to encourage e-filing at the state level.
The IRS’s data release is a triumph for openness and transparency in the nonprofit sector. It illustrates the benefits of easily accessible open data and encourages future progress toward increased regulatory efficiency and freely available information for entrepreneurs, policymakers, researchers, and citizens.