Who Determines Where the Sun Shines? Understanding Stakeholder Influence in Nonprofit Reporting

Understanding the Power and Evolution of IRS Form 990

For nonprofits across the United States, IRS Form 990 serves as a crucial accountability tool. Not only does this form help ensure compliance and transparency, but it also provides valuable insight into nonprofit management, finances, and governance. Despite its central role, few have explored how this form has evolved, who shapes it, and why those changes matter.

Who Shapes Form 990 and Why It Matters

In our recently accepted article, “Who Determines Where the Sun Shines: Nonprofit Sector Stakeholders and the IRS Form 990 Redesign,” published in Nonprofit and Voluntary Sector Quarterly, my co-authors and I explored these important questions. We analyzed public comments from the most recent significant revision of Form 990 in 2007, uncovering a detailed picture of the interests and stakeholders influencing nonprofit transparency and regulation.

Who Participates in the Rulemaking Process?

First, we identified who actually participated in the IRS’s rulemaking process. Surprisingly, individual nonprofit organizations, although the largest group submitting comments, represented less than half of all comments. Perhaps more intriguing was the strong participation from for-profit entities, particularly accounting firms, consultants, and law firms. These groups, often overlooked, wield significant influence due to their expertise and practical roles in nonprofit operations. This reveals an underappreciated reality: nonprofit regulation isn’t solely shaped by nonprofits themselves but also by vested interests from other sectors. For practitioners, this means it’s crucial to recognize these external voices when interpreting Form 990 and other regulatory requirements.

What Stakeholders Prioritized in the Redesign

Next, we delved into what mattered most to those who commented. Submissions frequently focused on issues like compensation reporting, governance practices, community benefits, and the overall burden of completing Form 990. For instance, many nonprofits expressed concerns about the practicality and potential implications of detailed governance disclosures, emphasizing that overly prescriptive requirements could mislead the public about what’s actually legally required. This highlights a nuanced tension between transparency and practicality—a balancing act that nonprofit leaders confront daily.

Importantly, the process revealed clear differences in priorities among stakeholders. Nonprofit hospitals were particularly vocal about community benefit reporting, emphasizing the complexity and potential burden of new requirements. On the other hand, for-profit entities and professional associations frequently focused on technical and detailed matters of form design and compensation disclosures. These differing emphases remind practitioners that Form 990 is not merely a neutral reporting tool but reflects an ongoing negotiation among varied interests.

How Stakeholder Input Changed the Final Form

Finally, we looked at the concrete changes the IRS adopted based on these stakeholder comments. Over 400 distinct modifications were made to the proposed form, demonstrating substantial responsiveness by the IRS to stakeholder input. Changes ranged from removing controversial financial ratios—which nonprofits argued could mislead donors—to softening language around governance practices. This responsiveness illustrates a form of collaborative governance, where stakeholders not only advocate for their interests but also help shape effective regulation through detailed and constructive feedback.

Why This Matters for Nonprofit Professionals

Our research has practical implications for nonprofit professionals. Recognizing the role diverse stakeholders play in shaping accountability tools like Form 990 can help practitioners better navigate compliance challenges. Understanding the motivations and priorities behind specific regulatory requirements can inform better organizational strategies, whether in advocacy, communication, or internal governance practices.

Moreover, practitioners should view Form 990 as a dynamic, collaboratively created document rather than a static regulatory requirement. Staying engaged in future regulatory processes—either directly or through industry associations—is vital. Stakeholder voices clearly matter, shaping not just individual reporting requirements but broader perceptions of the nonprofit sector.

In sum, Form 990 is more than a reporting tool—it’s a reflection of the complex interplay of interests across nonprofit, for-profit, and regulatory sectors. As nonprofit practitioners continue to use this form to demonstrate transparency and accountability, understanding its collaborative origins can empower them to participate more effectively in future governance processes.

We encourage practitioners to leverage these insights, recognizing that proactive engagement and thoughtful responses to regulatory developments can lead not only to better compliance but also to a stronger, more transparent nonprofit sector.