Financially supported nonprofits and IRS Form 990 expense reporting
Journal of Public Budgeting, Accounting & Financial Management
ISSN: 1096-3367
Article publication date: 15 January 2024
Issue publication date: 11 April 2024
Abstract
Purpose
The authors examine whether limitations in Form 990 result in zero or understated fundraising and administrative expenses for organizations supported by related organizations. Form 990 does not consolidate financial information of legally separate related organizations, resulting in fundraising and administrative expenses being reported by supporting organizations but not by the supported organization.
Design/methodology/approach
The authors use the IRS Statistics of Income Sample Data Files and compare charities receiving support from related organizations (supported) to non-supported charities.
Findings
The authors find evidence that supported organizations are likely to report zero or understated fundraising expenses and zero administrative expenses. Those receiving related donations are more likely to have zero or understated fundraising expense while those receiving related compensation are more likely to have zero and understated fundraising and administrative expenses. The authors also find evidence that supported organizations receiving greater amounts of related donations and related compensation are also more likely to report zero and understated fundraising expenses as well as zero administrative expenses while greater amounts of related compensation are also associated with understated administrative expense.
Practical implications
Since donors and other stakeholders use Form 990 to evaluate nonprofits, its unconsolidated nature could result in a lack of comparability across organizations and misinformed resource allocation (e.g. donation) decisions. The results also have implications for researchers who use zero and understated fundraising and administrative expenses as proxies for low quality reporting or interpret them as data errors.
Originality/value
The paper examines the extent to which zero or understated fundraising expense reporting (i.e. the fundraising expense puzzle) is associated with supported organizations receiving financial support from related organizations. The authors also expand their examination to zero and understated administrative expenses.
Keywords
Acknowledgements
This paper has benefited from helpful comments by session participants at the 2021 AAA Government and Nonprofit Section Midyear Meeting.
Citation
Allen, A., Corradino, L. and McAllister, B. (2024), "Financially supported nonprofits and IRS Form 990 expense reporting", Journal of Public Budgeting, Accounting & Financial Management, Vol. 36 No. 2, pp. 146-176. https://doi.org/10.1108/JPBAFM-07-2023-0109
Publisher
:Emerald Publishing Limited
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