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Honest Money: How a Powerful Non-Profit Aims to Promote Transparency

News & Features | February 25, 2019

Note: Leviss worked for the Foundation Center Summer 2018.

 For those of us not frantically scanning the Chronicle of Philanthropy every morning, the creation of Candid might not seem like a big deal. Candid is the product of many years of collaboration and deliberation between non-profit industry giants Foundation Center and GuideStar. Foundation Center was founded as a reaction to the McCarthy-era hearings that placed philanthropic transparency (or lack thereof) smack in the middle of public and governmental scrutiny. The organization has continued its commitment to advancing knowledge in the sector by tracking grants and grantmakers in global philanthropy. GuideStar emerged almost 40 years later as the first searchable electronic database on non-profit data and has since grown into the most comprehensive source on US non-profits.

Now, as of February 5, the two organizations have formed a joint entity: Candid. True to its name, Candid combines the experience, technologies, insights, and information of the two leading institutions working for transparency in the non-profit sector. By providing individuals and organizations alike with access to resources and best practices, Candid helps them better serve their communities.

Candid’s conception marks the most recent step in a decades-long venture to increase transparency and knowledge in the non-profit sector, which has historically struggled to define itself as it navigates tax codes, government institutions, individuals, and organizations. 

Most organizations in the non-profit sector are designated as 501(c)(3), which corresponds to the US tax code that identifies organizations that are exempt from federal income tax. According to the Internal Revenue Service, to be qualified for 501(c)(3) status, an organization must demonstrate that its purposes are either “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.” In other words, 501(c)(3)s are organizations that appear to serve the public good.

This idea of public good, however, is harder to define. Here, the tax code is vague and open-ended: anything from helping the poor and advancing religious beliefs to defending civil rights and “lessening neighborhood tensions” are designated as charitable purposes.

Think about what qualifies as tax exempt under those specifications: major foundations, local community non-profits, hospitals, the NCAA, your neighborhood church, the Family Research Council, Tufts University. All of these organizations receive 501(c)(3) status from the IRS and the reputation and benefits of being viewed as “charitable” causes.

One of the primary benefits of a 501(c)(3) entity—beyond relief from federal income tax—is that any money given to the organization is tax deductible. To incentivize charitable giving, the federal government allows donors to deduct their donations from their taxable income.

A taxpayer in the highest tax bracket who donates $1,000 dollars to charity doesn’t actually pay $1,000 in the long run. When it’s time to file taxes, the taxpayer subtracts the money they donated from their taxable income. In this case, the highest tax bracket pays 37 percent of their income. This taxpayer has saved the 37 percent of $1,000 that they otherwise would have had to pay in taxes: $370.

On the other hand, when the federal government does not collect taxes on donations to non-profits, they still need to account for the money elsewhere in the budget. As a result, these tax deductions are collectively carried by US taxpayers—at a steep price. According to the book Just Giving by Stanford professor Rob Reich, deductions for charitable giving cost taxpayers at least $50 billion in 2016 alone.

“All of us subsidize the philanthropic sector because of the charitable deduction on our taxes…  so all of us have to make up for that money that’s lost,” Tufts professor of political science, Jeff Berry, said. Berry teaches Non-Profits and Civil Society, a seminar that examines the role of non-profits in the US. While our tax money pays for aircraft carriers and the Supplemental Nutrition Assistance Program (SNAP), it also mitigates the tax deductions of Bill Gates and the Koch Brothers.

In this way, both the government and taxpayers collectively participate in philanthropic giving; and yet, it is often difficult to trace exactly where that participation leads. “We have a right to know…where that money’s going,” Berry said. “And to know that that money’s actually going to organizations that are charitable in terms of their purpose.”

Ideally, adds Berry, it is the role of the federal government to monitor philanthropic behavior through the IRS. In practice, however, it is largely inactive. “The IRS has hardly anybody who works in the non-profit division, and therefore the chances of the government actually looking over a non-profit’s shoulder to see what it’s doing and how it’s spending its money is close to nil.”

As part of their 501(c)(3) status, non-profits make their tax returns public, often on their website. To the average taxpayer, however, these tax forms are full of industry-jargon. Most of us are not inclined to take the initiative and slog through pages of 990 forms to understand how our tax dollars are benefitting both our community non-profits and our neighborhood billionaires.

The non-profits themselves—while required to publicize tax information—are not obligated to explain that information. For smaller organizations with less resources and smaller websites, it is difficult to provide comprehensive resources on performance metrics and finances, which makes it harder for the public to understand their work.

This is where Candid comes in.

“Transparency builds trust, and trust is the foundation of getting things done” emphasized Jen Bokoff (A’08), Director of Stakeholder Engagement at Candid. Previously, both Foundation Center and GuideStar were major names in the sector with a shared commitment of using data and information to educate and empower the non-profit world.

The formation of Candid eliminates some of the redundancies and “grey area” between the two organizations. “Now,” Bokoff said, “we’re a one stop shop. When you bring many audiences and their data together—non-profits, foundations, donors, corporations, social enterprises, and others—you get insights and results you could not achieve otherwise.”

Organizations like Foundation Center, GuideStar, and now Candid are important because they advocate for transparency practices beyond financial accountability. The role of Candid is not just to highlight tax forms, stresses Bokoff, but rather, “to tell the story of foundations and non-profits in a fair and objective manner, to provide trusted data and knowledge for the sector.”

This means capitalizing on what each independent organization does best and incorporating talent and capacity to generate a broader impact. Foundation Center’s databases on global grant-making combined with GuideStar’s comprehensive profiles of non-profits and their work allows users to access more information with more efficiency. Resources to encourage transparency and data distribution can flow across both networks to improve philanthropic practices.

It is these types of collaborations and efforts that mark a turning point in the sector’s growth. Bokoff hopes that as the non-profit industry expands and deepens, Candid will inspire other organizations to join forces in productive ways.

In the first two months of 2019 alone, approximately $89.3 million worth of grants are already in circulation, funding everything from universities and health centers to religious orders and art museums. As the federal government’s jurisdiction continues to morph and shift, new non-profit organizations are emerging to supplement social services and complement pre-existing government initiatives. “I think there are more imaginative things that could be done in terms of partnerships between government and non-profits,” Berry added. “I think this administration, because it’s so unimaginative in terms of domestic policy, is really trying to shrink [and] is not going to be a source of that.”

Yet as the sector grows and the government shrinks, Candid remains cautious about the trade-off between government monitoring and industry self-regulation. “Candid is not a regulatory agency,” Bokoff emphasized. “Nor do we aspire to be one. We are ourselves a 501(c)(3) public charity; we are by the sector, for the sector.” In other words, Candid’s creation does not mean that the government no longer has an obligation to supervise the sector. If anything, Candid marks a concrete need for increased transparency in philanthropy and the potential for powerful partnerships between organizations and communities.