Using NCCS Data as a Tool for Nonprofit Research September 29, 2006 Tom Pollak Associate Director National Center for Charitable Statistics at the Urban Institute

The National Center for Charitable Statistics at the Urban Institute Repository of IRS data on nonprofit organizations; regular research reports, Almanac on dimensions of sector NCCS created 1981; later, part of Independent Sector’s research division Moved to Urban Institute in 1996 – Nonpartisan economic & social policy research organization NCCS is part of Urban’s Center on Nonprofits and Philanthropy headed by Elizabeth Boris

NCCS – The Past 10 Years Small team of staff & consultants Leverage through technology & collaborations Building data infrastructure –Collecting & standardizing files –Putting data online –Providing guides and resources to make data accessible –The Foundation Center

NCCS – The Past 10 Years (2) Data quality –Electronic Filing of 990s –Annual IRS-NASCO Form 990 Meeting –Overhead Cost Study & other research Building new data sources –GuideStar & IRS collaborations –State nonprofit associations, umbrella orgs –The Foundation Center

Nonprofit Organizations Concept Map Informal & unregistered organizations & community groups (numbers unknown) 501(c)(3) Private Foundations Registered with IRS but not filing annually Registered AND filing annual returns 501(c)(3) Public Charities Other exempt organizations 501(c)(4), 501(c)(5), etc. Registered Registered & Filing Annually All priv. foundations must register & file annually

Dimension #1: IRS Registration Are the organizations registered with the IRS? –A neighborhood association, recreation club, or community theater with gross receipts less than $5,000 per year is a nonprofit but is not required to register with the IRS. Religious congregations are not required to register, but many do so anyway.

Dimension #2: Annual Form 990 Filing Is organization required to file an annual IRS Form 990? (Gross receipts are more than $25,000 & org. is not a congregation.*) All 501(c)(3) private foundations must file annual IRS Form 990-PF forms. * Congregations, religious denominations, & closely related organizations are exempt from filing.

Dimension #3: 501(c)(3)s and Other Exempt Orgs. Are donations to the organization tax-deductible? –Public Charities. If donations are fully deductible, then likely to be a “501(c)(3) public charity.” These include most nonprofit arts groups, universities, hospitals, & human service organizations. –Private Foundations. If donations are partially deductible, then likely to be a “501(c)(3) private foundation.” These include the Gates Foundation, Ford Foundation, Carnegie Corporation, & 60,000 others. Otherwise, it could be a trade association, labor union, Elks Club, HMO, or a wide range of other “exempt organizations.”

Dimension #4: Formal - Informal There is no agreement on the outer boundaries of nonprofit “organization” The Formal: –Everyone agrees that a private college that files an IRS Form 990 is a nonprofit.

The Less Formal Are these “nonprofit organizations”? A neighborhood association that only meets every couple of years and is NOT incorporated? A group of people that get together for a 6-month fight against the building of a Wal-Mart? A group of people who get together once a month for football or to play jazz? What if they call themselves the “Podunk City Jazz and Football Club”? Have a club president? Pay dues? Advertise for new members? Are incorporated?

Datasets Available IRS Business Master Files NCCS Core Files, based on Form 990 GuideStar-NCCS Nonprofit Org Database, based on Form 990 IRS Statistics of Income Samples Other Files...

Good News, Bad News No perfect file. All have limitations If clear about research questions and goals, can usually make good use of our data

IRS Business Master File All organizations registered as tax exempt with IRS 1.4 million (May ’06) Files available for 1989, Basic descriptive information –Mostly from Form 1023 Application for Exemption –Gross receipts, assets, tax period from most recent Form 990

BMF Limitations Missing years in early 1990s 21% of orgs couldn’t be located in a 1990s survey Only the most basic descriptive information Addresses may be out-of-date Some errors on finances Only partial (and probably not representative) coverage of religious organizations

NCCS Core Files Annual files of organizations filing IRS Forms 990 Standard methodology: Public charities, private foundations, and non-501(c)(3) organizations 303,000 in variables Major financial variables, most types of rev., key expense detail

NCCS Core Trend Files “Long and narrow” compilation of small subset of key financial variables from 1989 through latest Core file Available for public charities or private foundations Update for 2004 should be available soon. We can also create custom “wide” datasets with imputed values for missing years

Core File Limitations 100 out of 400 or so possible variables No government grants! Most revenue vars, but weak detail in almost all other sections Missing returns: 1990, 1992… No “zero filers” (those reporting <$25k in gross receipts) – non-issue for most purposes

GuideStar-NCCS Nonprofit Organizations Database: “Digitized Data” Key punched independently by GuideStar from images scanned by IRS and purchased by NCCS Finances checked and edited by NCCS NCCS adds classifications, and other fields for researchers All 501(c)(3) public charities filing 990s, EZs FY 1998 – 2003

“Digitized Data” (2) 400+ variables in multiple files Part 3 program & org. descriptions Part 5 and Sch. A, Part 1 compensation Gov’t grants & full revenue detail Full functional expense & balance sheet detail “Naughty bits”: Other information and Sch. A

“Digitized Data” Limitations Only public charities Approximately 1% of EINs don’t match IRS’s official list – no easy way to merge with or supplement Core Files Data quality issues in Part 2 due to poor reporting by charities Missing organizations in 1998 due to IRS scanning problems Challenge working with large, complex database

IRS Statistics of Income (SOI) Samples Annual files of organizations filing IRS Forms Public charities, private foundations, and non-501(c)(3) organizations 16,000 organizations in 2002 public charity sample (990 filers plus & 500 EZ filers) 400+ financial variables for 990 filers

SOI Samples (2) All orgs with $30+ mil. in total assets Sample of others, and very few EZ returns Skilled editors adjust rev., exp. & bal. sheet line items Ideal for national studies of finances of large organizations

SOI Limitations Field names (“P010”) difficult for researchers (although easier for “array processing” in SAS) Editing/changing of items is both a strength and a weakness No access to confidential 990-T information on unrelated business income without “special sworn status” Little/no value for geographic or state analysis

Other Files Unified Database of Arts Organizations – combines IRS, state arts agency mailing lists, and other sources Itemized household giving by zipcode, 1997 “501(h) electors” – Organizations that report their advocacy expenses under special IRS rules 1992 program descriptions from IRS 990 Parts III & VIII

NCCS Data Web

Researcher’s Guide to NCCS Data Database file descriptions KnowledgeBase, FAQ+ include technical notes, “snippets” of information, and more Table Wizards, fact sheets and state profiles The DataWeb Classification Tools NCCS Resources for Researchers

Getting Access to NCCS Data The problem with intellectual property: Marginal costs for distribution is zero but cost to create is large NCCS mission is to make data available for research purposes Until several years, we made all data available for free to researchers, but can no longer afford this “business model”

NCCS Data: Our Costs Tranforming raw data into researcher- friendly databases Cleaning the financial data Purchase of rights to GuideStar data Ongoing classification Processing data requests Technical support to users & the IRS, Creating & maintaining the DataWeb Outreach & data quality work And more…

NCCS Data: Your Costs If seeking funding for research using our data, PLEASE talk to us first about including real cost of data in your funding proposals DataWeb access but no data extracts: Free for students and scholars for research purposes Cost for Digitized Data – nominal For unfunded projects, typical cost in the $ range depending on number of databases, with discounts based on need (“the impoverished student” loophole)

Classification NTEE organization-level classification –National Taxonomy of Exempt Entities –Purpose, type and major function of orgs. –Translates to federal government’s more general NAICS codes Nonprofit Program Classification (NPC) –Program level activity codes –1 mil.+ programs –NCCS implemented using auto-coding systems

Classification Quality NTEEs –90% at major group level –All records given a NTEE confidence code –800,000 records with firm codes, another million with “draft” auto-codes IRS Activity Codes –NCCS discourages use –Old IRS self-coding system –Useful information –3 per org. assigned: 1 st is best

National Taxonomy of Exempt Entities (NTEE) created in early 1980s Hierarchical: –10 major categories: From arts, environment, education, health care, human services, & lots of “others” –Broken into major groups (letters of the alphabet) –600+ “decile” and “centile” codes Example: –Major group “P”: Human Services (general) –“P6”: Emergency Assistance –“P62”: Victims’ Services NTEE Classification

National Taxonomy of Exempt Entities (NTEE) created in early 1980s Used by NCCS, Independent Sector, the Foundation Center Starting in 1998 IRS “determination specialists” began assigning codes to new organizations – quality an issue IRS SOI classifications started independently around the same time for SOI sample NTEE-XP used by Foundation Center “Condensed” NTEE-CC (only 600 codes and no “common codes”) created for IRS by NCCS NTEE Classification

NTEEs A - Arts, Culture, and Humanities B -Education C -Environmental Quality, Protection, and Beautification D Animal-Related E - Health F- Mental Health, Crisis Intervention G-Diseases, Disorders, Medical Disciplines H -Medical Research I - Crime, Legal Related J -Employment, Job Related K -Food, Agriculture, and Nutrition L -Housing, Shelter M-Public Safety N -Recreation, Sports, Leisure, Athletics O -Youth Development P -Human Services - Multipurpose and Other Q -International, Foreign Affairs, and National Security R -Civil Rights, Social Action, Advocacy S -Community Improvement, Capacity Building T -Philanthropy, Voluntarism, and Grantmaking Foundations U -Science and Technology Research Institutes, Services V -Social Science Research Institutes, Services W -Public, Society Benefit - Multipurpose and Other X -Religion Related, Spiritual Development Y -Mutual/Membership Benefit Organizations, Other Z -Unknown/Unclassified

EON Online Classification Tool

Getting Started with the DataWeb Become a registered user at or One-Minute Tours on the Data Web Guide to Using NCCS Data

“The Worst”

NCCS & IRS E-Filing July 1999 – Began e-filing project (IRS schedules e-filing of 990s for 2007) Feb – Live in Pennsylvania with Desktop990 (990 and state forms) Oct – Colorado added Feb – IRS goes live with e-filing 990s; NCCS unveils 990-EZ Online Feb – NCCS unveils 990 Online. To date, nearly 9,000 returns created. Jan – IRS requires largest orgs to e-file, implements Fed-State Retrieval System, 7 certified 990 e-filing providers March 2006 – New infrastructure supports multiple states, state-only filings, & morec

990 Online: The TurboTax for Nonprofits! Web-based system for preparing Form 990 and e-filing with IRS Immediately improves quality of reporting More than 9,000 returns created Free Easy to use Drop-down menus, calendars for selecting items & dates Program takes care of all arithmetic Verifies that all required items are included Context-sensitive links to IRS help and expert tips

990 Online Generates an Adobe PDF for easy printing, saving Electronically file with the IRS Adding state forms now Secure Import common schedules from Excel Data in usable format Saves data from year-to-year No duplication of entries: Questions are asked only once

990s, EZs, Extensions… Import Information from Last Year’s Return

50+ Attachments, No Math

Create a 990 That Your Organization Will Be Proud Of

The Future of E-Filing Integration of federal and state e-filing systems Dramatic improvements in quality of information that nonprofits put on forms Dramatic improvements in ability of regulators to ensure quality of data by checking for missing items, checking ratios, etc. Decline in costs of communication from regulators if can be done electronically Save tens of millions in key punching costs Open door to better use of 990s for outcome measurement, use by umbrella associations, and researchers

New Projects: Helping New Organizations Register with the IRS NCCS working on development of web- based Form 1023 Cyber Assistant – application for tax-exempt status – for IRS Provides assistance for preparer, like 990 Online Goal is better quality applications; also usable data

Using 990 Data for Financial Analysis: Themes “All 990 Data is Not the Same”: Some 990 items are highly reliable and valid; others are not No single “nonprofit sector”: Almost always need to distinguish large & small Sector vs. panel analysis Fiscal vs. “Core”/”circa” years

No Single Nonprofit Sector: Distinguishing Large and Small Orgs in Analyses Financial profiles are very different If aggregate large and small,large will overwhelm and distort small orgs’ finances Combine medians,ratios, and panels instead of aggregating dollars

Good Parts, Bad Parts Part 1 Revenues: B+ Part 2 Functional Expenses: C Part 4 Balance Sheet: A- Parts 4-A & B: A- Part 5 Compensation: B Part 7 Income-Producing Activities: C

Part I: Revenue Gross receipts vs. total revenue Government grants or contracts? Audited financials’ “grants and contracts” Statutory need to distinguish & redefine government grants Read the instructions! Private contributions Dues Special events

Part I: Net Income “Excess (or deficit) for the year” – line 18 Beware of this number: Unstable from year to year The effect of multi-year grants, inkind contributions, etc.

Part II: Functional Expenses 990,not EZ What’s fundraising? 37% of orgs reporting more than $50k in direct private contributions reported ZERO fundraising costs! Urban Inst./Indiana Univ. Center on Philanthropy Overhead Cost Study Guidelines clear but POOR reporting, understanding

Part II: “Other Expenses” More than 30% of "other expenses" could be allocated to one of the existing lines on the Form 990. More than 1/3 of the amount reported by the sample in "other expenses" were for consulting services. Other major categories included occupancy costs (already on the 990), advertising, and insurance.

Part IV: Balance Sheet Best section on 990 Closely corresponds to audited financials Weaknesses: No distinction between current and long-term assets and liabilities No “quasi-endowments” or board- designated funds distinguishable Use investment assets as proxy? Liquid assets: all but real estate and equipment?

Part IV-A & B: Reconciliation with Audited Financials Can be very useful if small sample On latest SOI file? Not in Digitized Data Donated professional services Unrealized gains and losses from investments

Part VII: Income Producing Activities Gross under-reporting of Medicare and Medicaid revenue. Why? Nobody wants to pay Unrelated Business Income Taxes Only available on SOI files

“Core/Circa” vs. Fiscal Year Fiscal year: Only returns with ending period in given fiscal year: 12/31/2005 and 6/30/2005 = FY 2005 Core/Circa Year: Latest return received within past 2 years SOI Year: (Almost) only returns STARTING in given calendar year. Choice depends on research question, availability of data

Geographic Analysis Street Addresses –23% are PO Boxes in BMF –27% in Core files –All but several hundred have 10-digit zipcodes County FIPS codes, using 5 digit zipcodes MSAs derived from FIPS

Challenges Headquarters vs. service delivery area National offices, local branches Community good or ill? –Group homes vs. services for residents What’s missing? –Depends on the study –Missing food pantries, small arts orgs –Religious service organizations – maybe –Government services

Using NCCS Data for Surveys Mail surveys –21% of BMF orgs. cannot be located (non- filers) –GuideStar “digitized data” vs. Core Files –Use GuideStar data for contact names Phone surveys –Use GuideStar data for phone numbers & contact names –Challenges reaching large organization Exec. Directors

Which Sampling Frame? Start with population, and start excluding… Include unstaffed organizations? (personnel costs as indicator) Include trusts? Include supporting organizations? Include orgs with national or non-service focus? Start with narrowly tailored group of operating organizations?

Response Rates 50% possible, but very difficult and expensive Pre-Tests and Cognitive Interviews Dillman multi-modal approach: repeated mail & phone contacts Use of incentives? Internet option is easy, but don’t depend on it NCCS weakness: No addresses! But outside services are option to explore