News and analysis
June 17, 2015

IRS Advisory Panel Calls for Mandatory Electronic Filing of Form 990s

An Internal Revenue Service advisory panel on Wednesday pressed the agency to require nonprofits to file financial data electronically and called for the creation of a committee to simplify the Form 990.

To buttress their case, members of the Advisory Committee on Tax Exempt and Government Entities presented IRS officials with the results of a survey of 468 nonprofits that found that less than 2 percent of the organizations that file 990s each year by mail view mandatory electronic filing as a burden.

"The sheer amount of data being collected by the IRS — and hopefully shared with states, foundations, researchers, and others — can provide insight and analysis that is not readily available anywhere else," the panel wrote in its report.

Tamera Ripperda, director of the IRS Exempt Organizations office, told the panel that because large nonprofits are required to file electronically and the 990-N used by the smallest charities always filed that way, "we’re missing out on a lot of digitized data in the middle."

Specifically, the panel recommended that the IRS:

  • Support a Congressional mandate to require electronic filing of 990s and take interim steps, such extending the filing deadline for those that do so electronically.
  • Convene a committee to determine which parts of the current Form 990 should be updated, enhanced, or deleted.
  • Request more information on the 990-N form, which is used by nonprofits with assets of no more than $50,000.

Seeking ‘Readable’ Data

In recent months, calls have increased for the IRS to require electronic filing and for the agency to make those filings available in a "machine-readable" format, making it easier for researchers, donors, and nonprofit leaders to aggregate and analyze the data. Currently, the agency converts all filings to unsearchable image files.

In February, President Obama made the case in his fiscal 2016 budget proposal that many nonprofits already prepare their filings electronically and that making e-filing a requirement would not pose a large financial burden.

And early this month, the U.S. Treasury Department delivered electronic filings from nine nonprofits to open-records activist Carl Malamud. In January a federal judge ordered the U.S. Treasury Department, which oversees the IRS, to make the data available.

Mr. Malamud said he would continue to press for electronic filing so that people have easier access to information about nonprofits’ finances, salaries, lobbying activities, and trustees.

He’s in favor of a law requiring the dissemination of nonprofit data in computer-ready format, but he said waiting for congressional action was simply "buying several years to ignore the problem."

The IRS, he maintained, should put the data "out in the street" so enforcement officials, potential donors, and nonprofit leaders could glean a better understanding of nonprofits.

Tax Form’s Shortcomings

The panel’s survey included positive feedback on the Form 990, which was last updated for the 2008 tax year. Some had good things to say about it, like one respondent who said "The 990 is da bomb!" according to the report.

But other respondents identified shortcomings.

For instance, many thought the form’s "Checklist of Required Schedules" was long and complex. Others thought the form’s Schedule J, where filers list employee benefits, is confusing and said that more varied examples of compensation would help them in filling out the form. Many respondents said the correct way to classify government grants is unclear, and they need better guidance on how to report noncash donations and estimates for volunteer services.

While Ms. Ripperda spoke favorably of electronic filing, other agency leaders voiced concerns about the cost of implementing such a mandate.

In brief remarks to the panel, Commissioner of the IRS John Koskinen said he would consider the recommendations, which also included changes in tribal, state, and local government tax policy and the rules governing tax-exempt bonds. Many changes could be relatively easy to accomplish, he said. But he singled out changes to the 990 as a potential drain on IRS staff time and resources.

"We’re going to play the hand we’re dealt," he said. "We’re under significant financial constraints."

Send an email to Alex Daniels.