Internal Revenue Service 990 Data: Fact or Fiction?

This exploratory study examines the reliability and validity of Internal Revenue Service (IRS) 990 data, an increasingly prevalent source of financial measures in the research of nonprofit organizations today. Correlations between selected financial measures taken from the IRS returns of 270 nonprofits and the identical measures gathered from the same organizations via mail questionnaire are examined, followed by examination of financial statements and interviews with participants in the accounting process from a subsample of the organizations. High correlations show the IRS 990 Returns to be a generally reliable source of financial data, although this varies by entry, organizational size, and NTEE category. The validity of this data, however, is questionable. The growing prevalence of expense shifting combined with a lack of rules, guidelines, and monitoring of internal expense allocations allows for increasing distortions in the financial picture portrayed by the IRS 990 Return.