Transparency Talk

Category: "Legal Issues" (4 posts)

IRS Releases 990 Forms as Machine-Readable Data
June 16, 2016

Editor's Note: Last month, Transparency Talk featured a blog post by Foundation Center president, Brad Smith on the coming of open 990 data and its implications for philanthropy. Read here for additional perspective on the news story below that the IRS has now formally started its release of 990 Forms, including 990-PFs, as machine-readable, open data.

Irs-logo-250 Amazon Web Services has announced that the Internal Revenue Service has made more than a million electronic 990 tax forms available as machine-readable data through its Amazon Simple Storage Service.

Released Wednesday, the public data set includes certain Forms 990 filed by nonprofit organizations with the IRS since 2011, Forms 990-EZ filed by smaller nonprofits, and Forms 990-PF filed by private foundations. The data from each 990 is provided in an XML file that includes the main 990 form, other filed forms and schedules, and any information detailing how the document was filed; some non-disclosable information is excluded.

The release of 990 filings as machine-readable data by the IRS, which plans to add new 990 data on a monthly basis, will make it easier for anyone to search the forms digitally for information about an organization's finances, trustees, lobbying activities, and salaries. Even when nonprofits or foundations filed them electronically, the IRS previously had stripped the forms of confidential information, converted them to TIFF (image) files, and released them as PDF documents. But in response to a lawsuit filed by open-records activist Carl Malamud in 2015, a federal judge ordered the IRS to release machine-readable Forms 990 from nine nonprofits. The IRS's Advisory Committee on Tax Exempt and Government Entities subsequently called for the agency to require nonprofits to file their financial data electronically, and the agency announced that it would begin releasing electronic versions of the forms this year.

This post originally appeared on Philanthropy News Digest.

Foundation Transparency: Game Over?
May 23, 2016

(Brad Smith is president of Foundation Center).

BradfordKSmithThe tranquil world of America's foundations is about to be shaken, but if you read the Center for Effective Philanthropy's (CEP) new study -- Sharing What Matters, Foundation Transparency -- you would never know it.

Don't get me wrong. That study, like everything CEP produces, is carefully researched, insightful and thoroughly professional. But it misses the single biggest change in foundation transparency in decades: the imminent release by the Internal Revenue Service of foundation 990-PF (and 990) tax returns as machine-readable open data.

Clara Miller, President of the Heron Foundation, writes eloquently in her manifesto, Building a Foundation for the 21St Century: "…the private foundation model was designed to be protective and separate, much like a terrarium."

Terrarium photo 2Terrariums, of course, are highly "curated" environments over which their creators have complete control. The CEP study, proves that point, to the extent that much of the study consists of interviews with foundation leaders and reviews of their websites as if transparency were a kind of optional endeavor in which foundations may choose to participate, if at all, and to what degree.

To be fair, CEP also interviewed the grantees of various foundations (sometimes referred to as "partners"), which helps convey the reality that foundations have stakeholders beyond their four walls. However, the terrarium metaphor is about to become far more relevant as the release of 990 tax returns as open data will literally make it possible for anyone to look right through those glass walls to the curated foundation world within.

What Is Open Data?

It is safe to say that most foundation leaders and a fair majority of their staff do not understand what open data really is. Open data is free, yes, but more importantly it is digital and machine-readable. This means it can be consumed in enormous volumes at lightning speed, directly by computers.

"The release of 990 tax returns as open data will literally make it possible for anyone to look right through those glass walls to the curated foundation world within."

Once consumed, open data can be tagged, sorted, indexed and searched using statistical methods to make obvious comparisons while discovering previously undetected correlations. Anyone with a computer, some coding skills and a hard drive or cloud storage can access open data. In today's world, a lot of people meet those requirements, and they are free to do whatever they please with your information once it is, as open data enthusiasts like to say, "in the wild."

Today, much government data is completely open. Go to data.gov or its equivalent in many countries around the world and see for yourself.

The theory behind open data, increasingly born out in practice, is that making information available leads to significant innovation for the public good while the demand for and use of such data also improves its accuracy and quality over time. And some open data is just fun: one of my personal favorites is the White House visitors list!

What is the Internal Revenue Service Releasing?

Irs-logo-250Thanks to the Aspen Institute's leadership of a joint effort - funded by foundations and including Foundation Center, GuideStar, the National Center for Charitable Statistics, the Johns Hopkins Center for Civil Society Studies, and others - the IRS has started to make some 1,000,000 Form 990s and 40,000 Form 990PF available as machine-readable open data.

Previously, all Form 990s had been released as image (TIFF) files, essentially a picture, making it both time-consuming and expensive to extract useful data from them. Credit where credit is due; a kick in the butt in the form of a lawsuit from open data crusader Carl Malamud helped speed the process along.

The current test phase includes only those tax returns that were digitally filed by nonprofits and community foundations (990s) and private foundations (990PFs). Over time, the IRS will phase in a mandatory digital filing requirement for all Form 990s, and the intent is to release them all as open data. In other words, that which is born digital will be opened up to the public in digital form. Because of variations in the 990 forms, getting the information from them into a database will still require some technical expertise, but will be far more feasible and faster than ever before.

"Over time, the IRS will phase in a mandatory digital filing requirement for all Form 990s, and the intent is to release them all as open data."

The Good

The work of organizations like Foundation Center-- who have built expensive infrastructure in order to turn years of 990 tax returns into information that can be used by nonprofits looking for funding, researchers trying to understand the role of foundations and foundations, themselves, seeking to benchmark themselves against peers—will be transformed.

Work will shift away from the mechanics of capturing and processing the data to higher level analysis and visualization to stimulate the generation and sharing of new insights and knowledge. This will fuel greater collaboration between peer organizations, innovation, the merging of previous disparate bodies of data, better philanthropy, and a stronger social sector.

The (Potentially) Bad

The world of foundations and nonprofits is highly segmented, idiosyncratic and difficult to understand and interpret. GuideStar and Foundation Center know this.

But many of the new entrants who are attracted by the advent of open 990 data will not. They will most likely come in two forms: start-ups claiming their new tools will revolutionize the business of giving, and established, private sector companies, seeking new market opportunities. Neither of these is intrinsically bad and could lead to some degree of positive disruption and true innovation.

The negative potential could be two-fold. Funders will inevitably be intrigued by the start-ups, their genius and their newness and divert funding towards them. Foundations are free to take risks and that is one of their virtues. But while needs grow, funding for the data and information infrastructure of philanthropy is limited, technology literacy among foundations relatively low, and many of these start-ups will prove to be shooting stars (anybody remember Jumo?).

"Once the 990 data is 'in the wild,' conclusions may be drawn that foundations find uncomfortable if not unfair."

The second category of new entrants is far more complex and will come in the form of for-profit data analytics companies. Some of these have business models and immensely sophisticated black box technologies that rely heavily on government contracts for defense and national security. They will be lured by the promise of lucrative contracts from big foundations and mega-nonprofits and the opportunity to demonstrate social responsibility by doing good in the world.

But these for-profit analytics companies will quickly discover that there is only one Gates Foundation among the 87,000 private foundations and only a handful of richly-resourced nonprofits among the 1.3 million on the IRS registers. And those who choose to contract the services of "Big Analytics" will need to consider the potential reputational consequences of aligning their "brands" with the companies behind them.

Sound defensive? Not at all: Foundation Center welcomes the competition, has been building for it since 2010, and knows the challenge can only make us and the social sector better.

The Ugly

Once the 990 data is "in the wild," it is possible if not probable, conclusions will be drawn that foundations find uncomfortable if not unfair. Those who are new to the field and relatively uninformed (or uninterested) in its complexity, may make claims about executive compensation based on comparisons of foundations of wildly disparate size and scope.

The same could be done with overhead rates, payout, or any other figure or calculation that can be made based on information found in the 990-PF. Some foundations already chafe when responsible sector advocates like the National Committee for Responsive Philanthropy (NCRP) use Foundation Center data to rank foundations according to their Criteria for Philanthropy at Its Best. Imagine claims coming over the transom from individuals and organizations whose core values do not include a belief in the practice of philanthropy and a normative vision for how it could be better.

"Another potential consequence lies at the intersection of the open 990 data and the growth of impact investing."

Another potential consequence lies at the intersection of the open 990 data and the growth of impact investing. This was the spirit in which Clara Miller introduced her terrarium analogy to highlight what she sees as the artificial disconnect between the controlled, strategic, and curated world constructed by the grants side of foundations and the sometimes contradictory forces at work in the larger economy in which their assets are invested.

Foundations like Heron are striving to put 100% of their assets toward mission, while others like Rockefeller Brothers Fund are divesting their investment portfolios from fossil fuels and re-investing those assets in ways that further the goals of their climate change grantmaking, rather than exacerbate the problem.

A recent (and as of yet unpublished) Foundation Center survey found that 60% of foundations were not engaged in impact investing and had no plans to do so. That is their choice, but open 990 data may well put them in a position of having to publicly explain it.

For example, using Foundation Center databases, I searched across several hundred thousand foundation 990-PF tax returns and found 37 foundations that held Corrections Corporation of America stock in their investment portfolios. These foundations may well believe, as the majority of foundations insist, that the purpose of the investment arm of the foundation is to generate the highest sustainable return possible in order to fund the mission through grants. But if a foundation holding that stock is striving to work on juvenile justice or improve the lives of black men and boys, an investigative reporter or activist might well ask why they are investing in a corporation that runs private, for-profit prisons

It's 10:00pm, Do You Know Where Your 990 Is?

With the game over for foundation transparency, the big takeaway is to know your 990-PF (or 990 for community foundations). Suddenly, it will be transformed from a bureaucratic compliance document into one of your foundation's key communications vehicles.

"Regardless of how each of us may feel about the greater transparency required of foundations, it is increasingly inevitable."

Right about now, you may be thinking: "What about the website re-design we spent all that money on, with our new logo, carefully crafted initiative names, and compelling photos??" It's still important, and you can follow the lead of those foundations guided by the online transparency criteria found on Foundation Center's Glasspockets website.

But for the sector as a whole, while fewer than 10% of all foundations have websites, they all file 990 tax returns. As the IRS open data release unfolds and mandatory digital filing kicks in, the 990-PF will become one of the primary sources of information by which your individual foundation will be known and compared to others.

I recently asked a group of foundation CEOs whether they ever had an in-depth discussion about their 990-PFs among their board members and was met with blank stares. In a world of digital transparency, this will have to change. As 990s become a data source and communications vehicle, the information on them will need to be clear, accurate and above all, a faithful representation of how each individual foundation makes use of the precious tax exemption it has been granted to serve the public good.

A few simple tips for starters:

  • Take advantage of Section 15 (block 2) to talk about your priorities, grant process, limitations, and restrictions.
  • In Section 15 (block 3) write the correct, legal name for each grantee organization and add its EIN or BRIDGE ID
  • In the same section, write clear and compelling descriptions for the purpose of each grant (more than you might think, people look at foundations by what they fund).
  • Make sure all numbers on the form add up correctly (you'd be surprised!).

Regardless of how each of us may feel about the greater transparency required of foundations, it is increasingly inevitable. Philanthropy is essential to American society and a positive source for good in a challenging world.

As the terrarium walls insulating individual foundations fall, we will surely face a few moments of anxiety and discomfort. But greater transparency, fueled by open IRS data, can only make us more conscientious stewards of our resources, more effective decision-makers, and better collaborators on our way to achieving greater and greater impact in the world.

Game over? It's just beginning!

-- Brad Smith

Glasspockets Find: Learn Foundation Law Pools Resources to Offer Legal Training to Private Foundations
September 3, 2013

(Rebecca Herman is Special Projects Associate for Glasspockets at the Foundation Center-San Francisco.)

Remember all those group projects in school that were supposed to help us work together as a team? The main lesson we learned from the process was that group assignments are never easy. In the grown-up world of philanthropy, “collaboration,” “resource-sharing,” and “knowledge-building” are buzzwords that frequently show up in our benchmarks for success. Foundations often ask nonprofits if they can pool resources and share information with their colleagues, and we all know this can be just as difficult as when we were teenagers.

 Thankfully, there are online tools to facilitate both collaboration and transparency, thereby increasing our efficiency and reducing duplication of effort. Wouldn’t you like to know if someone else has already tackled any complex issues your organization is facing? The Learn Foundation Law website is an example of teamwork by a group of foundations who have created training materials on legal issues in the field of philanthropy. The legal staff at the David and Lucile Packard Foundation, Bill & Melinda Gates Foundation, The William and Flora Hewlett Foundation and Gordon and Betty Moore Foundation created Learn Foundation Law in 2010 as an online instructional resource, so that any foundation can jump-start their legal education.

The website is also a wonderful instance of foundations being more open about seldom-discussed issues in philanthropy. Course topics include legal rules for private foundations on advocacy, lobbying, and anti-bribery/anti-corruption. You can find a commentary on the content of Learn Foundation Law’s online training materials on the blog of the National Committee for Responsive Philanthropy.

Advocacy

For more information about advocacy funding in particular, check out this guide on GrantCraft, the Foundation Center’s own online resource and knowledge center for grantmakers. There is even a GrantCraft guide about funder collaboratives! At Glasspockets, we advocate for transparency in philanthropy, and we see one of the benefits of greater openness is to make it easier for the field as a whole to earn an A+ in collaboration.

-- Rebecca Herman

Glasspockets Find: Bronfman Philanthropies Chooses Transparency for Its Sunset Years
July 22, 2011

The Andrea and Charles Bronfman Philanthropies The Andrea and Charles Bronfman Philanthropies (ACBP) has announced the steps it has taken and will continue to take as it prepares to close in 2016.

In 2001, Charles Bronfman and his wife, Andrea--who passed away in 2006--chose 2016 as the year by which ACBP would, as Charles Bronfman and ACBP President Jeffrey Solomon write in an open letter on the foundation's web site, "accomplish the goal of ensuring that the missions of the organizations that ACBP has incubated wouldAs with any good investment, there is a time to invest and a time to exit. - Charles Bronfman and Jeffrey Solomon continue." "There has been little written about the dynamics, challenges, and choices that need to be addressed [when a foundation sunsets]," write Bronfman and Solomon in the letter. "[F]or those reasons, we will transparently document our process as it unfolds. We will also take responsibility for stimulating a wider and deeper conversation among donors and professionals in the philanthropic community about the philosophic, strategic, and day-to-day considerations that are involved, and our learning and experiences along the way."

Bronfman and Solomon go on to say that they have discussed ACBP's transition plans with grantees, including the support that will be available to them during the process, and that the foundation will continue to provide them with advice and back-office assistance on a regular basis. In addition, the foundation has retained outside advisors to help ensure that the missions of the incubated organizations will be preserved going forward; that the organizations will be in a position to not only survive but thrive; and that the people involved will be treated with sensitivity throughout the transition.

In April 2009, the Foundation Center released Perpetuity or Limited Lifespan: How Do Family Foundations Decide? The first large-scale examination of foundation lifespan planning, the study benchmarked the intentions, practices, and attitudes of nearly 1,100 active family foundations in 2008. With 90 percent of family foundations created since 1980, the report found that, while existing in perpetuity continued to be the norm, more than a third were either uncertain about their lifespan or planned to limit their lifespan.

By sharing experiences as they sunset in an honest and open manner, foundations like the Andrea and Charles Bronfman Philanthropies can--and will--make an invaluable contribution to the field, providing guidance and important insights to many family foundations as they navigate their own transitions in leadership and service.

Please share your thoughts and comments!

-- Mark Foley

About Transparency Talk

  • Transparency Talk, the Glasspockets blog, is a platform for candid and constructive conversation about foundation transparency and accountability. In this space, Foundation Center highlights strategies, findings, and best practices on the web and in foundations–illuminating the importance of having "glass pockets."

    The views expressed in this blog do not necessarily reflect the views of the Foundation Center.

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    Director, Transparency Initiatives
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