Nonprofit advocates and watchdogs have hailed the introduction of a bill that would expand mandatory electronic filing of nonprofit tax returns, though there are some concerns the bill could create logistical issues for small and rural nonprofits.
Congressional leaders in the House and Senate filed identical bills on March 28 that aim to modernize the Internal Revenue Service. Both include a provision that would do away with exemptions that have allowed many large charities and foundations with big endowments to avoid filing their form 990 tax returns electronically. The House version of the bill was approved by the Ways and Means Committee April 3, emerging with the e-file provision intact. The Senate Finance Committee has yet to take it up.
Currently, about one-third of the estimated 1.5 million nonprofits in the United States file their tax returns in paper format. Translating that data from paper to digital formats more suitable for analysis and research takes time and effort for regulators, researchers, nonprofit managers, and donors alike. As a result, there’s a big hole in the data universe surrounding nonprofits, said David Borenstein, chief technology officer at Open990.
“There’s a whole host of questions about who is the most X-Y-Z or who is the least A-B-C that you simply can’t answer,” said Borenstein. “Mandatory e-filing would be such an exciting development for those of us who are interested in understanding the nonprofit sector.”
Allison Grayson, director of policy development and analysis at Independent Sector, a group that advocates on behalf of nonprofits, noted her organization has for several years supported expanded e-filing requirements.
“This kind of data is what the nonprofit sector and our funders and the general public use as the primary data source for the entire health and well-being of the sector,” said Grayson in an interview. “The faster we can get that information out into the public, the more we have better research about the sector and what’s happening within the sector.”
Restricting Detail?
One common objection — expressed by representatives of the Michael and Susan Dell Foundation — is that electronic 990 forms can make it difficult for nonprofits with complicated finances to submit detailed supplementary material.
“Our tax return is complex, with many required schedules and attachments, including returns related to our international grant programs.” wrote Dulari Gandhi, communications manager, in an email. “By using paper filing, we can internally reference the attachments in the return and also format the attachments to make them easier to read for anyone interested.”
Borenstein doesn’t buy it.
“When you are attempting to hold an organization accountable in exchange for the extraordinary benefit of being exempt from taxes, descriptive liberty is precisely not what you want them to have,” said Borenstein. “They are free to make any statement they wish on any supplementary material or to publish an annual report that describes their side of the story.”
While the bill includes a provision for smaller nonprofits that allows the IRS to phase in over two years the expanded e-filing requirement, there are concerns any expanded e-filing mandate could unduly burden smaller nonprofits in rural areas caught on the wrong side of the digital divide, according to Jason Chmura, executive director of the Society for Nonprofits.
“If this becomes a legal requirement for all nonprofits, what happens to organizations that don’t have the necessary access? How is this being addressed, if at all, and what considerations are being made for the corresponding software requirements?” wrote Chmura in an email to the Chronicle. “This legislation may have minimal impact on the majority of nonprofits, but it could be unduly burdensome or nearly impossible for organizations who are already at a disadvantage.”
Correction: A previous version of this article mistakenly called David Borenstein “Daniel.”
