Updated on February 5, 2015, at 8:05 p.m.
A federal judge today handed open-records activist Carl Malamud a victory in his battle to get the Internal Revenue Service to release Form 990 tax returns in a format that can be read by computers, thus making information about nonprofit operations far more accessible.
U.S. District Judge William Orrick rejected the IRS's argument that producing the documents requested by Mr. Malamud's group, Public.Resource.Org, would create a significant burden on an overstretched agency.
"The fact that an agency may be under significant financial distress because it is underfunded does not excuse an agency's duty to comply with the [Freedom of Information Act]," he said in a ruling filed in U.S. District Court of the Northern District of California.
He gave the IRS 60 days to produce the Forms 990 in machine-readable format for nine nonprofits named in Mr. Malamud's suit, all of which had submitted their returns electronically. The agency has until then to file an appeal. A spokeswoman for the Justice Department, which represented the IRS in court, said government lawyers were reviewing the ruling.
The IRS now strips nonprofit tax filings of confidential information and converts them to image files, even those that have been filed electronically. That makes it difficult to conduct digital operations like searches of multiple forms.
The public now gets online access to Forms 990—which tax-exempt organizations file annually to detail their finances, governance, and programs—through organizations like GuideStar, which converts them to PDFs. But today's ruling could open the doors to other FOIA requests from nonprofit experts, journalists, academics, and others wanting to more easily search Forms 990 for data on things like salaries, board members, lobbying, or grants.
The IRS said it would have to spend $6,200 to develop protocols and train staff members to remove confidential data before releasing the documents requested by Mr. Malamud in machine-readable format. It said it had suffered significant cuts in staffing and been forced to freeze new information-technology projects because it lacked funds.
Offer of Aid
Mr. Malamud said he has proposed helping the White House and Treasury Department set up a government-run electronic database of Forms 990 and that talented digital programmers in agencies like the General Services Administration and Office of Management and Budget could be recruited to do the job.
"My goal is that the administration not take this as a loss but as an important opportunity to release this information," he said.
Spurring Electronic Filing
Cinthia Schuman Ottinger, head of the Aspen Institute's Nonprofit Data Project, said the court ruling gives momentum to one of her project's goals—to get legislation to require all nonprofits to file Forms 990 electronically, a mandate that now applies only to certain types of organizations, and make them publicly available in machine-readable format. President Obama has proposed that strategy in his last two budgets, and she expects he will include it again when he unveils his new budget on Monday.
In 2013, 54 percent of Forms 990 were filed by paper, according to IRS figures.
"Malamud's suit recognizes that this is an antiquated system and is going to help take the system into the digital age," Ms. Schuman Ottinger said.
If Mr. Malamud's dream of a public electronic database comes to fruition, it will change the ways groups that now provide public access to Forms 990 operate.
Ken Berger, president of Charity Navigator, which rates charities based on information found on the Forms 990, filed a declaration supporting Mr. Malamud's lawsuit. He said his group is forced to retype information from the IRS image files into its own spreadsheets and databases to conduct its analyses, increasing the risk of errors.
And the extra work limits the number of charities the group can rate, he added.
Mr. Malamud recently turned over to ProPublica, the investigative news operation, 8 million Forms 990 that he bought from the IRS to maintain a free online database. In June, Mr. Malamud pulled down the database, which included PDFs and digital files to help programmers develop new services, to protest the lack of response to his complaints that the IRS failed to remove Social Security numbers from many tax forms before releasing them publicly.
ProPublica is offering free access to the 990s through its Nonprofit Explorer tool. Mr. Malamud said he would work with the news outlet initially to help process new files before letting it take over the operation.
GuideStar, a veteran charity-information service, supports the effort to open up Form 990 data but recognizes it could affect its business model, says Chuck McLean, vice president for research. The group provides most of the information it gleans from Forms 990 free but earns the bulk of its revenue by charging for premium services.
"On the one hand, if this happens, we won't have to spend a million bucks a year keypunching data," said Mr. McLean. "But it will then be a much more competitive environment in terms of how that data is used. We will be competing with everyone else to provide the best products and services that use that data."