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Universal e-file key to transparency

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Dennis Walsh

Substantial government and nonprofit sector resources went into implementation of the revised IRS Form 990, rolled out in 2008.

After all of the publicity about improvements in governance, transparency and accountability through collection and organization of more meaningful nonprofit data, what has Congress done since to assure that all of this information is readily available to the public?

The Government Accountability Office reports that less than 40 percent of 990s filed in 2010 were submitted electronically.

According to the National Center for Charitable Statistics at the Urban Institute, the IRS in 2008 manually scanned nearly 656,000 paper 990 returns, a staggering 12.5 million pages.

The majority of Form 990’s are professionally prepared, virtually all with computer software.

For nonprofits that prepare their own returns, Form 990 Online, developed by the National Center for Charitable Statistics, provides a user friendly alternative to commercial software with convenient e-file capability that is either free or very inexpensive, depending on income level.

It makes no sense to convert electronic data to paper to be manually scanned and transcribed by IRS personnel.

Organizations such as GuideStar and other users of 990 information then must assume the added cost and delay associated with compiling or digitizing data as needed from scanned images provided by the IRS.

It takes an additional 2 months to 6 months for GuideStar to make a 990 available to subscribers.

GuideStar visitors still can download 990’s by establishing a free member account.

But the substantial cost of maintaining and improving a searchable 990 database is currently borne by GuideStar’s minority of paying users and by its shrinking foundation support.

The public should have prompt and complete access to this government-collected information, without depending on the business model of an independent source such as GuideStar or through time consuming public inspection requests.

The solution?

The National Center for Charitable Statistics says the dramatic reduction in the cost of collecting and analyzing Form 990 information made possible through e-filing will lead to an information-rich sector that will meet the diverse needs of various stakeholders.

However, incomplete e-file participation is a barrier to improving sector transparency and wastes IRS resources, adding to taxpayer burden.

Savings from the elimination of paper processing could be applied to the cost of systems needed to support direct public access to individual 990’s, along with tools for extracting user-selected information from across the 990 database.

Form 990 access through the recently-introduced IRS Select Check web portal would complete a comprehensive one-stop resource for the most up-to-date information about an exempt organization and its status with the IRS.

Individual nonprofits stand to benefit by having their 990 data made available to current and prospective funders in the most timely and accessible manner possible.

And since nearly 1 in 3 paper 990’s have errors that must be resolved through time-consuming correspondence, additional cost savings would be realized.

Adding 990 access to Select Check also would facilitate modernization of the public-inspection rules of Section 6104 of the Internal Revenue Code by making all 990’s widely available within days of electronic submission, eliminating a need for paper or principal-office inspection requests.

As mandated by the Pension Protection Act of 2006, small nonprofits eligible to file the Form 990-N “e-Postcard” must submit this annual update electronically.

For other nonprofits, however, only a public charity with over $10 million in total assets must file electronically if it annually files at least 250 returns of all types, such as for income, excise, employment, and information.

President Obama’s budget proposal for fiscal 2013 would grant authority to the Treasury Department to require additional e-filing by lowering this 250-return threshold.

As presently framed, however, this provision creates potential for indefinite delay in the implementation of universal e-filing.

So Congress should build on this proposal by amending Section 6011(e) of the Internal Revenue Code to phase in mandatory e-filing for all nonprofits in a manner similar to the implementation of the revised Form 990.

And appropriation should be made to ready IRS systems for direct public access to 990 information by the end of the phase-in period.

Let’s finish the job started in 2006.


Dennis Walsh, a certified public accountant, is director of the Micah Project in Greensboro, N.C.

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