Group Seeks Improved Access to Exempt Organization Data

June 2, 2022

Department of the Treasury
Internal Revenue Service

Re: Recommendations for 2022–2023 Priority Guidance Plan Notice 2022–21

To Whom It May Concern:

We thank the Department of the Treasury and the Internal Revenue Service (IRS) for this opportunity to submit recommendations for the 2022–2023 Priority Guidance Plan pursuant to Notice 2022-21. The comments, which follow, focus on the Forms 990.

The groups and individuals submitting these comments are leading members of the tax-exempt community in the United States, working with the Nonprofit Open Data Collective convened by the Aspen Institute's Program on Philanthropy and Social Innovation. These nonprofit organizations, donor organizations, researchers, data scientists, and Form 990 platforms play a key role in taxpayer compliance by communicating with the public, particularly donors, through the provision and analysis of “open” 990 data, and gathering data on trends in tax-exempt activities, finances, and governance.

Signatories include: Candid, Charity Navigator, Fidelity Charitable, National Committee for Responsive Philanthropy, and Independent Sector, as well as some of the most prominent researchers and analysts of tax-exempt activity in the United States today, i.e. Eugene Steuerle, Elizabeth Boris, Patrick Rooney and others writing in their individual capacities.

Should you have any questions, please contact me at the Aspen Institute's Program on Philanthropy and Social Innovation at cinthia.schuman@aspeninstitute.org.

Sincerely,

Cinthia Schuman Ottinger
Deputy Director for Philanthropy Programs
Program on Philanthropy and Social Innovation
Aspen Institute
2300 N Street NW, Suite 700
Washington, DC 20037

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Public Comment on the 2022-2023 IRS Priority Guidance Plan:

Tax-Exempt & Government Entities Division:

Notice 2022-21

Summary

The Taxpayer First Act represents a major step forward with respect to the transparency, efficiency, and understanding of the tax-exempt sector. Through the mandatory electronic filing of tax-exempt returns and the release of this information by the IRS in a machine-readable format as soon as practicable, nonprofit information will be more accessible than ever before, creating a wealth of knowledge for nonprofit organizations themselves, regulators, donors, and the general public. Such information has the potential, in turn, to greatly improve compliance and government oversight, by providing the public with tools to detect and locate potential concerns. Thus, the recommendations below support efforts by the Internal Revenue Service (IRS) to advance compliance, in this case by strengthening the public's ability to be informed about tax-exempt organizations and activities — among the primary reasons that Congress mandated transparency with respect to the Form 990 series.

Despite the e-filing and disclosure requirements of the Taxpayer First Act, the spirit of this important law remains unrealized. Though the IRS began releasing electronically-filed 990s to Amazon Web Services in 2016, such data has been presented to the public in a haphazard and, at times, indecipherable manner. For example:

• The absence of a clear and timely data release schedule keeps the public guessing as to when new data will appear, and whether there have been updates. In fact, we are aware of no major postings of e-filed 990 data by the IRS since October 2021. Such delays in the posting of 990 data have significant consequences. The current situation is damaging to nonprofits, which could be construed as being out of compliance, and potentially misleading to prospective donors, who are deprived of the most current information available. The failure to release 990 data can also have serious implications for salary reporting used to benchmark compensation for compliance purposes.

• Without tools that effectively organize and categorize 990 data, it is nearly impossible for most to make heads or tails of the information. Other federal agencies provide “data dictionaries,” guides, and additional “metadata” to help the American public make use of important public data sets. The provision of such basic information is considered to be a standard data practice, and is required by the Open Government Data Act. The IRS should conform to this practice.

On December 16, 2021, the IRS announced a major change with respect to the release of 990 information: “Beginning December 31, 2021, the IRS will no longer update the Form 990 Series data on Amazon Web Services. This change is to provide access to public data for organizations with tax-exempt status in one location on IRS.gov on the Charities and Nonprofits webpage.”

Whether released to Amazon Web Services (AWS) or the Tax-Exempt Organizations Search webpage, it is essential that the IRS makes its public data available in a way that does not frustrate the law. Therefore, we hope that the IRS uses this opportunity to make open 990 data more accessible to the public and establish common-sense improvements that ultimately further compliance.

In addition, tax-exempt organizations have played a crucial role serving on the frontlines of COVID relief and assisting with economic and social recovery efforts. Such work is often accomplished in partnership with government. This is a particularly important time to track government funding of nonprofits, yet this is now not possible, due to changes that were made to the Form 990 in 2008. Thus, we include a recommendation to improve the reporting of government revenue through minor modifications to Part VIII of the Form 990.

Finally, we applaud the helpful role of the Statistics of Income division with respect to tax-exempt organizations, and hope that the IRS will continue making this valuable research available, while addressing gaps in the extracts for certain forms, such as the Form 990-PF.

A summary and explanation of our recommendations follow below:

1. Recommendation: Take Steps to Improve Communication with the Public and Address Gaps in Quality, Utility and Accessibility of Data

1a. Create a Regular 990 Release Schedule and Web Page. While the release of e-filed 990 forms has provided a wealth of data, effective use of the data is hampered by a lack of communication and a regular release schedule. Currently, releases of 990 data are highly irregular, and we are aware of no major postings of e-filed 990 data by the IRS since October 2021. This void leaves many tax-exempt stakeholders in the dark, harming nonprofits, donors and the public, all of which rely on this information to make funding, operational and other decisions.

The creation of a 990 data release schedule would allow the public to plan ahead and use this data more efficiently. In addition to a release schedule, the IRS should consider employing a format similar to the Exempt Organizations Business Master File page on the IRS website to create a page pertaining to the e-filed 990s. This page would recap the particulars of releases, such as record counts and posting dates, provide contact information for questions, and serve other communications functions.

1b. Ensure that Published Data is Current and Complete. The IRS needs to ensure that public datasets are current, complete, and documented when released, and that subsequent updates or revisions are properly disclosed. Experts have noted significant inconsistencies and omissions between the three IRS public sources of detailed Form 990 data that should generally agree: annual Revenue Transaction Files (RTF — listing of all Form 990 returns processed during a calendar year); digitized e-file returns available in XML format on AWS as of October 2021; and digitized e-file returns from 2022 back to 2015 made available in XML format on IRS.gov. Examples include:

• There are more than 28,000 e-file 990-PF returns files processed during 2020 listed in the annual RTF (released June 2021) that are still not available nearly a year later in digitized XML format on the Amazon Web Services (AWS) archive, or on IRS.gov (as of April 2022);

• There are over 100,000 returns available on AWS archives since October 2021 that are still not available on IRS.gov (as of May 2022); and,

• There are six e-file Form 990 return downloads currently listed as '2021' on IRS.gov, however the number of e-file XML returns found within those six downloads went from 188,537 in April 2022 to 357,597 by May 2022 without any documentation, or notification of change. In addition, a seventh 2021 download was discovered by chance which is not listed on IRS.gov (https://apps.irs.gov/pub/epostcard/990/xml/2021/download990xml_2021_7.zip)

1c. Take Steps to Make Data More Accessible and Usable (Post Form 990 “Schema,” and Create/Improve Data Indices):

• Post Form 990 “schema.” The Extensible Markup Language (XML) files have proved to be challenging for even high-level data scientists, who have encountered such problems as multiple versions of the forms and the lack of documentation (“metadata.”) One major concern is the inaccessibility of the IRS Form 990 XML schema, which is necessary for the understanding and interpretation of the underlying 990 data. While the schema was previously available to the public, it has now been moved to an IRS Secure Object Repository that requires individuals to engage in a complex registration process prior to access. This process — essentially registering as an authorized e-file provider for the IRS — requires applicants to make available their Social Security Number and Adjusted Gross Income, as well as pass a detailed “suitability check.” The process appears to take months to complete. Given that the Form 990 is a public document, there is concern that requiring a registration process that involves sensitive information to access the schema has a chilling effect on the use of 990 data by the public. Providing public access to basic data documentation, such as the Form 990 schema, is imperative and, as noted above, is a standard practice required by the Open Government Data Act.

• Create/improve the consistency of the 990 indices. The 990 data files now being released solely on IRS.gov do not have indices, which are necessary for discerning the underlying data. Data indices are available on the AWS site, but there are serious concerns with those indices, and we hope that problems are rectified on IRS.gov. For example, the indices, which are published in .json and .csv, are not consistent. We have learned that, in some cases, .json files are missing a significant number of records that appear in the .csv files. Additionally, if an organization makes two filings in the same year, the .json file only includes the first one. The lack of accurate and consistent information threatens the reliability of the data. We request that the IRS examine these inconsistencies and create a method for addressing these problems on IRS.gov.

• Provide an index to the URLs of 990 PDFs currently accessible via Tax Exempt Organization Search (TEOS). We are grateful that the IRS provides public access to scanned and printable 990s free of charge through its website. Currently, these.pdf files can be downloaded individually (through TEOS) or in bulk (through a separate page on the IRS website: https://www.irs.gov/charities-non-profits/form-990-series-downloads). There is no way, however, to link directly to the individual.pdf files hosted by the IRS. The existence of an index file that links EIN and tax period to a URL, as exists for machine-readable (XML) filings, has facilitated great innovation within the research community. A similar index for the.pdf files would likewise broaden access to these essential public records.

1d. Appoint a 990 Liaison within the IRS. Finally, the public would benefit from an IRS point person, or mechanism, for handling questions specifically regarding the e-filed Form 990 data now on IRS.gov. Currently, there is no procedure, or contact, for addressing questions regarding the data as they arise, separate from the Customer Account Services line. This is not only inefficient and frustrating for tax-exempt stakeholders, but it deprives the Service of a feedback loop that could be used to make upgrades and corrections that are particularly important during the early stages of this new undertaking.

2. Recommendation: Improve the Reporting of Government Revenue Through Modifications to Part VIII of the Form 990

The government is one of the largest funders of nonprofit activity in the United States. It is therefore vitally important to have a full picture of the overall scope of government funding of the nonprofit sector, how this support has varied over the years, and what types of nonprofits and areas of the country are experiencing changes in government funding of nonprofits.

In the current environment, information on government funding of the nonprofit sector is particularly relevant, both from a compliance and policymaking standpoint. In addition, we'd like to point out that there is a growing chorus of prominent voices expressing a need for this information. Independent Sector's comments on the Form 990 in 2021 addressed this need. Comments submitted by the National Council of Nonprofits also refer to this need. The American Institute of Certified Public Accountants (AICPA) similarly addressed the need for change in Part VIII of the Form 990 in 2011 (see pg. 5).

Unfortunately, due to modifications of the form, the Form 990 Part VIII Statement of Revenue continues to lack sufficient clarity with respect to the reporting of government revenue, confusing users of the form, and likely resulting in inaccurate reporting. In particular, two of the largest sources of government support to the nonprofit sector — voucher-type reimbursements such as Medicare and Medicaid, and government contracts — are buried in the “program service revenue” line along with private payments for services.

For example, since 2008, when the Form 990 was modified, the Service has not asked nonprofits to separately report their revenue from Medicare, Medicaid, and other reimbursement payments. These payments, which reach a broad array of nonprofits beyond hospitals, are now generally aggregated with other “program service revenue,” obscuring the largest form of government support to the nonprofit sector. We understand that Medicare and Medicaid are captured for hospitals on Schedule H, Part III. However, this schedule is only for hospitals, and Medicare and particularly Medicaid are available to many other health and human service providers. As Congress considers prospective changes in government programs, such as Medicare and Medicaid, transparent and proper reporting of how these funds are being distributed and utilized across the nonprofit sector becomes more important.

Similarly, despite the fact that government contracts are a major and common source of nonprofit revenue, they are not separated on the Form 990, leading to additional confusion, particularly because contracts may fall either under Part VIII, line 1(e) (government grants), if they benefit the public as a whole, or within Part VIII, section 2 (program service revenue), if the contract primarily benefits a government agency. Nowhere on the form is the totality of government support reported. Nor can this totality be computed from elements of it that are reported, since some of the most sizable elements are buried. To avoid these problems, government revenue should be more clearly labeled and distinguished in the Form 990, as noted in the following proposed changes to the form.

2a. Medicare/Medicaid/Contracts: Part VIII, Line 2 — Form 990. As noted above, Medicare and Medicaid payments, and other government reimbursements represent the largest source of government revenue to the nonprofit sector, but the extent of these payments is now obscured due to changes to the Form 990 in 2008.

2b. Recommendation: Clarify the Distinction between Grants and Contracts That Benefit the Public Versus Those Payments That Serve the Needs of a Governmental Unit

Many in the nonprofit sector have difficulty distinguishing between grants and contracts that benefit the public versus those payments that serve the needs of a governmental unit. The 2015 Advisory Committee on Tax Exempt and Government Entities (ACT) report highlighted this problem, finding that it can result in “inconsistent reporting among seemingly comparable organizations” as well as errors in the computation of some organizations' public support test on Schedule A (see pgs. 136-137). Given the significance of government revenue to the nonprofit sector, it is important that the IRS take steps to address this.

3. Recommendation: Continue the Valuable Work of Statistics of Income (SOI) Division with Respect to Tax-Exempt Organization Data Files, Including Publishing Revenue Transaction Files for 990-PFs 2017-2019

As the IRS states on its website, the Revenue Act of 1916 mandated the annual publication of statistics related to “the operations of the internal revenue laws” as they affect:

• Individuals

• All forms of businesses

• Estates

• Nonprofit organizations

• Trusts

• Investments abroad and foreign investments in the United States

The Statistics of Income (SOI) division of the IRS fulfills this function by collecting and processing data and sharing this information with other governmental bodies and the general public.

The work of SOI is extremely valuable with respect to nonprofit data and research. For decades, SOI has collected microdata from a sample of Forms 990, 990-PF, and 990-EZ filed. The returns in the sample are subject to extensive cleaning, testing, research, and reallocation. The microdata files, which include several thousand data fields from Forms 990 and 990-PF, comprise the population of the largest nonprofit charities and the largest private foundations. These files are made available to the public, at no cost, on www.IRS.gov. In addition to downloading microdata files, users can access the SOI Bulletin, annual and time-series tables based on the Form 990-series, and other research publications.

The SOI tax-exempt data files remain an indispensable source of high-quality nonprofit data. While the release of e-filed Form 990 data under the Taxpayer First Act is of tremendous benefit to the public, there is still a need for the high-quality information that SOI researchers gather, analyze, and publish. We, therefore, express our support for the work of SOI and hope that the IRS will continue its support of the production and release of SOI's tax-exempt organization files.

Notwithstanding our strong support for the work of SOI, we wish to raise concerns regarding the annual Revenue Transaction File (RTF) extracts of Forms 990, 990-EZ, and 990-PF. This information has not only been critical for the basis of New Consumer Classification System “Core Files,” but it has also served as the only available open source of data for 501(c) organizations that file by mail, the so-called “paper filers.”

The annual Return Transaction Files (RTF) represent every 990, 990EZ, and 990-PF return processed by the IRS during the year, while SOI weighted samples normally lag RTF data by a full year and are based on a small number of organizations selected by size alone. SOI is mainly useful for national estimates but does not sufficiently account for different types of organizations, or for regional, state, or local variations. Annual RTF extracts have become increasingly important to policy and research communities. Consequently, we believe that the reinstatement and consistent release of 990-PF RTF files is imperative to understanding a critical source of nonprofit funding representing nearly $1 trillion in assets.

The sector applauds the SOI division for its publication of Form 990-PF returns processed during 2020, and intention to publish Form 990, 990-EZ and 990-PF returns processed during 2021 by the end of June 2022. SOI's stated commitment to finally publish Form 990-PF returns processed during the prior three calendar years remains unfulfilled, however, and we strongly support and urge all efforts to close this gap of missing RTF extracts of Form 990-PF returns processed in 2017, 2018, and 2019. There has been no comprehensive public source of private foundation data since approximately fiscal year 2015, and we cannot overstate the importance of these data to public understanding and oversight.

Conclusion

We urge the Internal Revenue Service to continue to work with the nonprofit sector to address the important concerns noted in this letter. Thank you for your consideration. Should you have any questions, please contact Cinthia Schuman Ottinger at cinthia.schuman@aspeninstitute.org.

Sincerely,

Aspen Institute's Prograam on Philanthropy and Social Innovation

Jon Bergdoll, Lilly Family School of Philanthropy*

Elizabeth T. Boris*

Candid

Charity Navigator

CitizenAudit.org LLC

DataLake Nonprofit Research

Nathan Dietz, Do Good Institute, University of Maryland-College Park*

Dorothy A. Johnson Center for Philanthropy, Grand Valley State University

Fidelity Charitable

Brad R. Fulton, Indiana University*

Nathan Grasse, Carleton University*

Kirsten Gronbjerg, Director, Indiana Nonprofits Project*

Teresa D. Harrison, Drexel University*

Dan Heist, Brigham Young University*

Independent Sector

Russell James, Texas Tech University*

National Committee for Responsive Philanthropy (NCRP)

Pamela Paxton, University of Texas at Austin*

Alexandra Pierschalla, Charity Navigator*

Dr. Chris Prentice, University of North Carolina Wilmington*

ReFED

Patrick Rooney, IU Lilly Family School of Philanthropy*

Louis Shekhtman, Northeastern University*

Eugene Steuerle*

*All opinions expressed herein are solely the individual's and not to be attributed to any of the organizations with which she/he/they are associated.