While there are many issues that affect nonprofits in President Obama’s proposed budget, one proposal of special interest to ERI is the request for Congress to require nonprofits to file all Forms 990 electronically and to encourage the IRS to release the data to the public in a format ready for computer use.

Current regulations only require tax-exempt organizations with assets of $10 million or more and who file at least 250 other documents with the IRS (such as wage information for employees) to e-file.  Very few organizations meet the mandatory requirement, but many 990 filers submit their returns electronically voluntarily.  In addition, the very small organizations that file the 990-N (with only a few questions to confirm contact information and revenue level) are required to e-file.  About 683,000 groups of the nearly 1.3 million tax-exempt organizations filed their returns electronically in 2012.

While the headlines may focus on being “forced to e-file” (see The Chronicle of Philanthropy), the reality is that most of the sector is on record in favor of this change.   In fact, when the smallest nonprofits must e-file their annual Form 990-N postcard reports, it is hard to argue that the nonprofits that meet the higher revenue requirements for filing the Form 990, Form 990-PF, and Form 990-EZ do not have access to a computer and the web.

Another important part of this proposal is the request that the IRS release data on all tax-exempt groups in a timely manner using a format that is easy for computers to read. Currently, the IRS converts any e-filed returns to an image of the form, then combines them with images of all paper returns, and provides them to researchers and companies like ERI.  Then the process of data entry begins, as the data from the images is typed into databases so that it can be used.  Even though there are some data e-filed with IRS, those data are not provided in a computer-ready format.   Thus, the process for making these public data accessible to users is time-consuming, very costly, and potentially prone to errors (i.e., changing formats, data entry).  Of course, it costs a lot for IRS to process paper returns, especially because the filing software eliminates a lot of the most common errors (no signatures, omission of required schedules, etc.).

It is a win-win issue—information will be more readily available to potential donors, regulators and watchdogs, the media, and others who have a stake in nonprofit finances and, at the same time, the IRS will see decreased costs for handling nonprofit returns.

The fate of this budget is uncertain, but let’s hope that this sensible proposal will resonate with Congress and finally find its way to enactment.