How Does Reduced Reporting Burden in 990-EZ Impact Nonprofits’ Financial Health? A Regression Discontinuity Design

• In Event: Testing the Boundaries of Administrative Burden

Abstract

Given their public-oriented missions, nonprofit organizations exchange a degree of privacy for tax exemption. Nonprofits must file IRS Form 990 annually, disclosing detailed information about revenue, expenditures, executive compensation, and other information about organizational operations. These disclosures enhance public trust in the nonprofit sector and provide accountability for potential donors. To reduce administrative burden, the IRS offers a simplified Form 990-EZ with minimal reporting requirements for nonprofits with less than $500,000 in assets and less than $200,000 in revenue. The much-lightened reporting burden can save staffing or external consulting costs for nonprofits. This can be significant for the financial situations and sustainability of nonprofits which are mission-oriented and mostly operated with thin margins.

In this paper we use the IRS Statistics of Income (SOI) 990 and 990-EZ data of the 501(c)(3) population from 2012-2023 to explore the causal effect of reduced reporting requirements on nonprofit survival and nonprofit financial health. We employ a double regression discontinuity design based on IRS asset and revenue cutoffs and examine differences in outcomes for nonprofits near each cutoff, which provides us with plausible causal explanations.

Our findings informs about the effectiveness of the policy of trading off accountability for reduced administrative burdens for nonprofits. The study has important implications for theories of nonprofit accountability and public disclosure, as well as practices like trust-based grant making and participatory philanthropy for smaller nonprofits.

Authors

• Andrew Heiss, Georgia State University
  Non-Presenting Co-Author

• Meng Ye, Georgia State University
  Presenting Author