The House of Representatives passed a bill Tuesday that would require all nonprofits to submit their Internal Revenue Service filings electronically.
The legislation, sponsored by Rep. Mike Kelly, a Pennsylvania Republican, passed on a voice vote, a procedure typically used for noncontroversial measures. Similar bills have been introduced in the Senate by Republicans Chuck Grassley of Iowa and Jim Thune of South Dakota.
If passed by the Senate and signed into law, nonprofits would have to file their 990 forms, the main source of information on tax-exempt organizations, in “machine-readable” format. Doing so would allow computing specialists to sort and search the data they contain.
The bill would make it easier for state regulators to identify and thwart sham charities, according to Karen Gano, president of the National Association of State Charity Officials.
“The ability to have machine-readable data allows us to much more quickly identify the outliers and see if there is something that needs to be investigated,” said Gano, an assistant attorney general in Connecticut. “We can more quickly identify and respond to fraud.”
Currently about 60 percent of charities file electronically, according to Cinthia Schuman Ottinger, deputy director of philanthropy programs at the Aspen Institute’s Program on Philanthropy and Social Innovation.
Broad Impact
The bill would have the greatest impact on midsize charities. Generally, organizations with gross receipts of less than $50,000 file the 990-N, a short form known as the “e-postcard,” and those with at least of $10 million in assets must file the longer 990 forms electronically. However, there are exceptions, and some very big charities still file paper returns.
Two dozen nonprofits in the Philanthropy 400, a ranking of the largest charities based on their level of private support, still send the IRS paper forms, and 82 don’t have to file because they are government entities such as public universities or religious institutions.
Many large nonprofits that have yet to switch are regional grant makers, such as the Tulsa and Greater Houston community foundations, and commercial donor-advised-fund sponsors such as Fidelity Charitable and Vanguard Charitable.
Vanguard said it supports the mandatory e-filing because it would make information more readily available to donors making decisions on gifts and would reduce the cost and time associated with filing.
It currently files paper forms so it can pack in more information without truncating data fields or leaving them out entirely, according to Kevin Cavanaugh, Vanguard’s chief financial officer.
“If filed electronically, the Schedule I grant listing would not be able to show the complete information we currently provide ... due to character limitations and formatting issues,” he said in an emailed statement. “We have chosen to file via paper to make all information available.”
Al Cantor, a critic of donor-advised funds, says there may be legitimate reasons not to e-file. But in filing paper forms, donor-advised funds make their activities harder to track and search. Cantor pointed to a 2017 investigative report in the Economist showing that donor-advised funds are sometimes recipients of big gifts from other donor-advised fund accounts.
“That’s important public information that’s not terribly accessible,” he wrote in an email.
Data Disclosure
If the current legislation reaches the finish line, nonprofits would have to e-file for the tax year following enactment, although smaller charities and groups that could demonstrate a hardship could get up to two additional years to comply.
The push to require electronic filing is part of a broader effort to open up nonprofit data to the public. In 2015, Public.Resource.org successfully sued the IRS to make nonprofit records available in machine-readable format. The Chronicle of Philanthropy was one of several media organizations that coordinated with the group to request files from the IRS, and it later helped test the agency’s system for distributing e-filed 990s. In June 2016, the IRS released electronically filed 990 forms through the Public Data Sets area of Amazon Web Services.
Since their release, Schuman Ottinger of the Aspen Institute has held several “Data-thons” to make the information more user-friendly.
“It’s been a bear to clean up,” she said. But when it is properly formatted, it is useful to journalists, researchers, nonprofit leaders, and policy makers, she noted.
Jesse Lecy, a professor of nonprofit studies at Arizona State University, said e-filing has helped him search and sift through more than 4,000 data variables, as opposed to 200 when he used paper filings. Particularly helpful, he said, is the ability to search text fields to learn more about nonprofits’ missions, governance, program services, and gender makeup.
“From a research perspective, e-filing is a game changer,” he said. “It’s opening up new frontiers.”
