Nonprofits that want to find out what their peers are doing can find a wealth of information in the forms the groups must file each year with the Internal Revenue Service—how much they pay their chief executives, how much they spend on fundraising, who is on their boards, where they offer services.
But the way the IRS makes those data available harkens to the digital dark ages, and critics who want to overhaul the system have been shaking up the generally polite nonprofit world with legal challenges, charges of monopoly, and talk of "disrupting" the status quo.
The issue will take center stage in a courtroom this week when a federal district judge in San Francisco is scheduled to consider arguments about whether to approve the IRS’s move to dismiss a lawsuit filed by an open-records group.
The group wants to obtain some specific Forms 990s, the informational tax documents filed by nonprofits, in a format that can be read by computers.
In theory, that shouldn’t be difficult since the nine nonprofits involved— including the American National Standards Institute, the New Horizons Foundation, and the International Code Council—submitted the forms electronically. But the IRS converts all 990s, no matter how they were filed, into images, rendering them useless for digital operations like searching multiple forms for information.
The lawsuit against the IRS, filed by Public.Resource.Org, aims to end that practice.
Carl Malamud, who heads the group, is a longtime activist who successfully pushed the Securities and Exchange Commission to post corporate filings free online in the 1990s, among other projects.
He wants to do the same with the IRS, arguing that data should be readily available at no cost about a sector that represents more than 1.5 million tax-exempt organizations and more than $1.5-trillion in revenue.
"This is not some follow-the-money expense-account database," he says. "This is fundamental market information."
The IRS declined to discuss the case, but the agency argues in court documents that it would be difficult to remove confidential information from electronic files and that open-records laws do not require it to release the forms in any particular format.
While waiting for the IRS to change its ways, Mr. Malamud has taken action into his own hands. His organization has spent more than $16,000 to purchase DVDs from the IRS and create a free public database of PDFs of Forms 990 going back to 2002, along with digital files to help computer developers build new services with the data.
But he says he’s getting tired of serving as a "proxy for the government" and may have to threaten to end the service in hopes that public complaints will force the IRS to take on the job. He learned in his fight with the Securities and Exchange Commission, he says, that "at some point you have to draw a line in the sand."
The IRS last year moved to make some Form 990 data more widely available electronically, releasing figures that nonprofits provide on sources of financial support, assets and revenue, spending on overhead and programs, and compensation to top-paid officials.
The nonprofit investigative news outlet ProPublica used the files to build a new database that enables people to search for that information.
But that trove fell short of providing access to entire Forms 990.
Another open-records advocate, Luke Rosiak, has gone further and created a sophisticated tool for doing just that. Last year, aided by money from the Sunlight Foundation, he started using Mr. Malamud’s files to create a public database that allows people to search for words in the tax returns, such as names of board members or phrases from mission statements. Mr. Rosiak, a reporter for the Washington Examiner, spends several hours a day and his own money to maintain the service, CitizenAudit, which involves using optical character recognition to extract text from the PDFs.
He says one of his original motives was to make it easier to trace financial relationships between nonprofits, for example, by examining lists of grants to see which groups are contributing to the sometimes-mysterious social-welfare groups that spend money to influence elections.
At first, CitizenAudit offered the information for free. But this month it started charging for access. After people have viewed 40 pages at no charge, they must pay from $99.99 a month to $599.99 a year to continue doing searches.
One client, Tom Pollak, program director at the Urban Institute’s National Center for Charitable Statistics, says his group is planning to test whether it could use CitizenAudit’s data for some of its online services, like in a new project that allows people to search for data about nonprofits in a region, town, or neighborhood.
Mr. Rosiak says one if his primary goals is to offer a cheaper alternative to GuideStar, the granddaddy of nonprofit information services. "GuideStar is a monopoly and its time has come," he says.
GuideStar, founded in 1994, posts financial and other data about every nonprofit registered with the IRS and has traditionally been the go-to site for people seeking Forms 990. While most of the information it provides is free, the $11-million nonprofit earns almost $9-million annually by charging for premium services.
Prices range from $125 for a report on an individual nonprofit to $2,000 for an annual subscription that allows users to conduct sophisticated database searches.
In fact, GuideStar even sells Form 990 data that it has purchased from the IRS back to the tax agency. Jacob Harold, GuideStar’s chief executive, says the agency pays about $600,000 a year to get "cleaned-up" information that it can download and search.
Nudge by Outsiders
Some nonprofit experts say the advent of upstarts like CitizenAudit and Public. Resource. Org. are healthy "disruptions" of the current system.
Lucy Bernholz, a visiting scholar at Stanford University who specializes in philanthropy and digital issues, praises Mr. Malamud for stepping in where established nonprofit players have not.
"They all see open 990s as coming, but they’re not going to create conflict to get it done," she says. "They’re not going to be adversarial about it, they’ll be collegial about it. It takes an outsider to really move things along."
Mr. Harold says GuideStar, which spends about $1-million a year to digitize IRS data, expects the new groups to "compromise some portion of our revenue in the next few years."
His organization recently adopted a strategic plan calling for a campaign to raise $10-million over three years, mostly from foundations, to pay for new ways to package and distribute data. It wants to go beyond the 990s and offer more information about nonprofit programs, strategies, and results.
The Form 990, Mr. Harold says, is a regulatory document and should not be the nonprofit world’s core "story-telling frame."
Meanwhile, many nonprofit advocates support efforts to require all nonprofits to file their Form 990 returns electronically, as a first step to producing more usable data.
Today, charities with at least $10-million in assets, along with all foundations and charitable trusts, must submit forms electronically if they file at least 250 tax returns during the year—for example, W-2 forms for their employees.
Nonprofits with $50,000 or less in revenue are required to file electronic Form 990-N "postcards." Everyone else has a choice—and about 70 percent of nonprofit returns are still filed manually, according to IRS projections for 2012.
The Obama administration’s last two budgets have proposed making e-filing mandatory and requiring the IRS to release them in machine-readable format for the tax years that follow.
Key lawmakers have endorsed the idea, but Congressional action on budget issues is always unpredictable.
The Aspen Institute urged Congress to enact the measure in a report it issued last year on "liberating nonprofit sector data." It said "open data" could help the nonprofit world function better, among other ways by making it easier for researchers to study how economic downturns affect nonprofits, the relationship between public and private spending for social services, and nonprofit lobbying and executive compensation.
The National Association of State Charity Officials also has pushed for mandatory electronic filing, saying it would help regulators better detect fraud. Instead of inspecting each form manually for red flags, they could conduct a search to see, for example, if someone reports working full-time for various nonprofits while claiming salaries from all of them.
Mr. Malamud argues that the IRS has no reason to wait and should immediately make available the cache of electronic files it has amassed since 2008.
The two sides are going back to court this month after an attempt at mediation failed. Mr. Malamud, who has been getting pro bono help from a San Francisco lawyer, Thomas R. Burke, says he will drop the lawsuit if IRS Commissioner John Koskinen agrees to meet with him about how his open-records work fits into President Obama’s stated desire to open up government data.
His message, says Mr. Malamud: "I’m from the Internet and I’m here to help you."
Anu Narayanswamy contributed to this article.