In Depth IRS 990 forms

Published on June 24th, 2016 | by Alexander Kostura

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To Get Serious About Open Data, the IRS Should Ditch Paper Filing for Nonprofits

The announcement last week that the U.S. Internal Revenue Service (IRS) has published a large amount of financial and administrative data about nonprofits is an important step forward on open data. While this information was already public, users can now access it online in a machine-readable format on Amazon Web Services, making it easier to process and analyze. Although this is a welcome development for transparency in the nonprofit sector, this data is far from complete because it does not contain information from the 40 percent of nonprofits that file their annual returns on paper. To ensure critical data about all nonprofits’ activities and finances are accessible to the public, Congress should discontinue the use of paper-based filings and instead require non-profit organizations to file these annual forms electronically. Mandatory e-filing would cut costs for both the IRS and the organizations who currently invest millions digitizing paper forms and converting scanned images, producing estimated total savings of up to $7.4 million.

Most nonprofits operating in the United States must file a form annually that discloses important information about the organization’s mission, activities, and finances. The form, called a 990, is designed to provide the government the information it needs to enforce the laws governing tax-exempt organizations and to disclose this information to the public. However, transparency advocates have long lamented that obtaining this information directly from the IRS is a difficult and time consuming process. To view all the 990s from one year, both those filed electronically and on paper, a user must pay a fee of $2,850 for a set of DVDs containing scanned image files. These image files are not machine-readable, meaning they cannot be automatically read and processed by a computer, making it impossible to analyze the data, compare multiple nonprofits, or look at trends like revenue growth across the whole nonprofit sector. Last week’s announcement means the IRS and nonprofits can now do this kind of analysis, but only for some nonprofits and only on filings since 2011.

Both the IRS and the nonprofit sector stand to benefit from making information from these forms available as open data. Nonprofits, watchdog groups, and charity rating services may analyze the data to recognize fraud, anticipate abuses, or report discrepancies in charitable spending. Individuals, foundations, and philanthropic advisors can then use data analytics to make informed decisions about their annual contributions. The IRS can even use this data to make filing easier for nonprofits. For example, the IRS can analyze the data to identify confusing questions that are leading to filing mistakes. The IRS can also build analytical tools to discover and predict cases of fraud or other illegal activity, thereby making the government more efficient and effective.

Researchers can also use this data to answer important questions. For example, public interest advocates might want to compare revenue streams over time for nonprofit organizations with missions related to their interests, allowing them to advocate more effectively with data-supported evidence. Additionally, this data will be even more valuable once it is combined with other datasets. For example, by combining the data from the IRS with another open dataset like the American Community Survey, an annual nationwide survey that collects demographic and economic data, a researcher could look at how well nonprofit resources are being employed across socioeconomic classes and geographic locations.

But these benefits can be fully realized without a dataset that includes all nonprofits. Because the IRS’s recent data release only includes data from e-filed 990 forms, it only covers approximately 60 percent of filings from the date range released. Moreover, this data is skewed toward the largest and smallest tax-exempt organizations because nonprofits with more than $10 million in total assets and those with annual gross receipts less than $50,000 both have mandatory e-filing requirements.  

This gap in the data would not be an issue, however, if the IRS required all nonprofits to e-file. This would not impose a significant burden on nonprofits as multiple providers offer e-filing services for little to no cost, especially for smaller non-profits. Furthemore, by definition, e-filed forms produce machine-readable data, which the IRS can quickly process to remove sensitive information and publish as open data.

While the IRS can take some immediate actions to incentivize e-filing such as extending the deadline for organizations that choose to e-file, it cannot implement this straightforward solution without action from federal lawmakers, as these filing requirements are established by Congress. Thus, Congress should intervene. The Charities Helping Americans Regularly Throughout the Year (CHARITY) Act, the Taxpayer Protection Act of 2016, and the Taxpayer Bill of Rights Enhancement Act all contain provisions requiring tax-exempt organizations to file 990 forms electronically and mandating the IRS publish this information as machine-readable, open data. Any changes that Congress makes to this section of the tax code should include this reform.  

Releasing this data is a good start for improving transparency and productivity for the nonprofit sector, but it is only the first step. Congress should step in to require the transition to electronic filing to ensure the public and private sectors can capture the benefits of open data for the nonprofit sector.

Image: Public.Resource.Org

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About the Author

Alexander Kostura is the 2016 Google public policy fellow at the Center for Data Innovation. Alex is passionate about information and communications technologies as tools for inclusive economic growth, good governance, and social welfare. He has most recently conducted research in corporate data sharing for social good, specifically in international development and humanitarian response. Alex holds a B.S. in foreign service from Georgetown University and an M.A. in law and diplomacy from the Fletcher School at Tufts University.



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