United States: Federal Court Orders IRS To ‎Release Digitally Readable Forms 990

Last Updated: February 2 2015
Article by Jeffrey S. Tenenbaum and Matthew T. Journy

A federal judge on January 30, 2015, handed the Internal Revenue Service (IRS) a significant defeat in its fight against releasing IRS Form 990 information returns in a digitally readable format – a format that would make information about tax-exempt operations more easily accessible.

The ruling of Judge William H. Orrick of the U.S. District Court of the Northern District of California in Public.Resource.Org v. U.S. will have a significant impact on the IRS as well as all tax-exempt organizations required to file the annual Form 990.

Judge Orrick rejected the IRS's argument that producing the documents requested by Public.Resource.Org under the Freedom of Information Act (FOIA) would create a significant burden on an over-stretched federal agency. The judge gave the IRS 60 days to produce Forms 990 in a digitally readable format for nine tax-exempt organizations named in the lawsuit, all of which had filed their returns with the IRS electronically. The agency has until then to file an appeal.

In response to FOIA requests, the IRS currently removes confidential information from Forms 990 and converts them to image files – even those that have been filed electronically – making it difficult to conduct digital searches of multiple forms and perform similar electronic functions. The public currently has online access to Forms 990 primarily through organizations such as GuideStar, which convert them to PDF files. This ruling could open the doors to other FOIA requests from the media, adversaries, competitors, consumer watchdog groups, researchers, and others wanting to more easily search Forms 990 for particular data.

As argued by the IRS, requiring the agency to provide searchable, electronic versions of e-filed Forms 990 in response to FOIA requests imposes the burden of establishing a process of redacting certain information from the returns that is not subject to public disclosure. According to the IRS, the initial expense of $6,200 for this particular FOIA request would constitute a significant burden because the agency is still operating under a sequestration-level budget and significant staffing reductions. Additionally, such a requirement imposes the burden of developing new protocols to train staff to respond to FOIA requests for searchable, e-filed versions of Forms 990.

A more significant impact will be on organizations that e-file their annual Forms 990 – the entities whose returns may be requested in the future. For these organizations, it will be far easier for the public, the media, and others to search for specific information reported on their annual Forms 990. This may impact the manner in which information is reported, and possibly alter the behavior of certain organizations. For instance, if searchable versions of Forms 990 make it easier to identify compensation provided to top nonprofit executives, organizations may begin to reconsider compensation levels to avoid unfavorable comparisons.

This ruling also could have a significant impact on GuideStar, Charity Navigator, and other charity rating and watchdog groups. Will these groups file FOIA requests to obtain electronic versions of e-filed Forms 990 and allow the public to search for Forms 990 by information reported in the form? For instance, will it become possible for watchdog groups to conduct a search of all 501(c)(3) tax-exempt organizations that incurred lobbying expenses in excess of more than $2 million a year, or to identify every nonprofit executive that was paid more than $1 million in a particular year? The answer could well be, yes.

The mandated public availability of Forms 990 has already had a significant effect on the activities, operations, and organizational structures of tax-exempt organizations. Requiring the IRS, in response to FOIA requests, to provide the public with searchable, electronic copies of e-filed Forms 990 should drastically increase that effect.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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