Text of a letter to the IRS on implementation of electronic filing for IRS form 990. April 18, 2002 Internal Revenue Service 111 Constitution Avenue Washington, DC 20224 Attn: Theresa Pattara, T:EO RE: IRS Announcement 2002-27, Comments Regarding Electronic Filing of Exempt Organization Returns Dear Ms. Pattara, OMB Watch appreciates the IRS's initiative in seeking public input on electronic filing for Form 990, and thanks you for the opportunity to submit these comments. We are a national nonprofit organization that seeks to increase government accountability and civic participation. We are also members of the Electronic Data Initiative (EDIN), a joint effort of national sector organizations that promotes use of electronic communications between nonprofits in government. We are submitting these comments to supplement those submitted on behalf of EDIN by INDEPENDENT SECTOR, addressing issues that are not included in those comments. OMB Watch works with and through the nonprofit sector because of its vital place in our communities and our faith that the sector can play a powerful role in revitalizing our democratic principles. Greater nonprofit participation in public policy setting and decision making strengthens our democracy by giving citizens vehicles for pooling their resources and exchanging ideas and information. This role requires public accountability, which is largely accomplished through the reporting and disclosure requirements of the IRS and state governments. To achieve accountability, it is important that information on nonprofits be accurate and easily accessible. Electronic filing of Form 990 helps achieve both those goals. As a result, we strongly support the IRS e-filing initiative. The information provided on Form 990 is also crucial for researchers seeking greater understanding of the nonprofit sector and the role it plays in society. The current paper based reporting system makes this research extremely difficult and unnecessarily expensive. The Urban Institute's National Center for Charitable Statistics allows the public to obtain the underlying key databases that have been digitized. For researchers, this is an incredibly useful service. However, there is a gap in services for those without large resources that would like to search the data for specific purposes. The National Center for Charitable Statistics and GuideStar have made great strides in developing databases with information on nonprofits and a pilot system for electronic filing of Form 990. The IRS can now take advantage of this experience to move electronic filing to the next level: electronic filing as the basis of a public dataset on nonprofits. Why Electronic Filing Should Proceed As Soon As Possible The IRS has been moving expeditiously to develop and provide electronic filing for individuals, corporations and small business. The nonprofit sector should have the same opportunities. The current paper based system is wasteful and unnecessarily expensive. It provides less benefit to regulators and the public than an electronic-based system could. The Announcement points out that 80% of nonprofits filing 990s use software to prepare their returns. That means the vast majority of returns are digitized at the beginning of the process. But in the paper based system the 990s are printed out and sent the IRS and to GuideStar, which in turn re-digitizes key information to post on its website. This is an expensive duplication of effort. Resources would be better used for other purposes. Public Use of Form 990 Information: A Major Benefit of E-Filing Although the number of 990 filers is relatively small compared to individual and corporate filers, nonprofit information is unique in that it is publicly disclosed. The number of users of the information is far greater than the number of 990 filers. GuideStar reports that many people use their site for a range of purposes such as a charity check or verification of the organization when a donation is about to be made to that group. Over 15,000 visitors access this site every day. The government (i.e., IRS) should be paying for the cost of this type of service. Foundations have provided the resources necessary to develop and support GuideStar and the Urban Institute to continue digitizing Form 990 information and making it available online until e-filing is fully implemented. Nonetheless, we believe these functions should be paid for by the federal government as soon as possible. Philanthropic funds should be used to partner with the federal resources to educate nonprofits and the public about use of the services and analysis of the data. But the tasks of getting the data into a format that is searchable, creating the search tools, and maintaining the service is a government function. This kind of public access is consistent with the Bush administration's emphasis on using the Internet to improve the government's interactivity with the public. They stress that not only does this create greater openness in government, but by providing data about performance it also strengthens accountability. E-filing gives the IRS the ability to create a fully interactive web site much like the Census Bureau's American FactFinder web site, and negates the need to digitize the data. The objective would be to allow users to search on any field of the Form 990. Thus, those interested in looking up the average revenue of arts groups should be able to find the information as easily as those who want to know how many organizations report that they lobby or those who want to map where the greatest concentration of nonprofits are in this country. EDIN can help create this interactive web site by preparing materials on the features and technical specifications for such a site. This information can be developed based on information provided by EPA, Census, and other agencies on how they developed interactive sites and nonprofit input on the type of information they would be interested in and a review of commercial services. This database should be linked through database calls to other, non-tax data. Other federal agencies have begun establishing the tools for online access to the databases that allows the user to aggregate and disaggregate the data and create their own tables. HUD, for example, allow users to map environmental data, such as the Toxics Release Inventory, with housing data. EPA's Envirofacts is a robust service that continues to improve each month. But perhaps the most intriguing service is provided by the Census Bureau at http://factfinder.census.gov/servlet/BasicFactsServlet. Through the American Factfinder, a user can search a variety of important databases and search on various variables. This distributed database could include linking the 990 tax data with related state data (e.g., solicitation data, enforcement data) so that when a user types in a name of a charity, for example, the search retrieves information from the IRS database (e.g., GuideStar) and the state database(s). However, the user has no sense that the data sits in two locations. It could also connect disparate data that when combined creates a mosaic that is greater than what each data set alone can provide. For example, linking the 990 data with federal and/or state employment data to provide a better understanding of the nonprofit sector in the economy. Promoting Uniform Reporting Nonprofits are always looking for ways to simplify and streamline the reporting and disclosure process. Through the efforts of the Urban Institute and others, most state regulators now accept the 990 for state reporting purposes. This has eliminated a great deal of unnecessary reconfiguration of information to meet inconsistent reporting requirements. Electronic 990 filing could also save resources at the state level, so that regulators could spend time and effort on more important activities than data entry. These include educational information for nonprofits and prevention of fraud and abuse through greater enforcement. More can be done to streamline nonprofit reporting procedures, especially for the more than 45,000 nonprofits that receive government grants. The President's Management Agenda calls for establishing an e-grants process that allows nonprofits to engage the entire grants process online, including identification of grant opportuntities, application, reporting, financial transactions and audit. In addition, the Federal Financial Assistance Management Improvement Act of 1999 requires federal agencies to develop uniform grant application and reporting standards. OMB Watch, the Urban Institute and GuideStar are co-sponsoring the Streamlining Government Grants project, which is working with federal and state officials on development and implementation of uniform data elements for the grants process. We are urging consistency with Form 990, so that data elements have common meanings across all government agencies. E-filing of Form 990 will help facilitate the transition to an electronic grants process by enabling agencies and nonprofits to transmit information quickly and with less duplication. Conclusion We must continue to find ways to improve transparency in our sector so that enforcement by federal and state charity officials is easier to do and so that the public can better understand the nonprofit sector and exert its own influence. OMB Watch Form 990 Information The IRS requested specific information about organizations responding to this Announcement. OMB Watch is a 501(c)(3) organization with an annual budget of about $1.5 million. Our accountant prepares our Form 990, using software. Copies of our Form 990 are available on our website at http://www.ombwatch.org/article/articlestatic/443/1/7/ Please feel free to contact us if you have any questions or would like any further information. Yours truly, signed Kay Guinane, Counsel and Manager, Community Education Center