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Breakthroughs in Electronic Filing for Nonprofits
By Putnam Barber, May 2004
May 17, 2004, goes down as a milestone date in the obscure world of nonprofit accountability.
May 17, 2004, is the first-ever deadline for filing Form 990 with the Internal Revenue Service (IRS) when filing could be done electronically, over the World Wide Web. It is the due date for exempt organizations whose fiscal year ended December 31, 2003. It is the 15th day of the fifth following month, plus a couple of days because May 15 fell on a Saturday this year. On February 23, 2004, in plenty of time for that deadline, the IRS had the procedures in place to receive these forms electronically.
Not only was electronic filing (e-filing) permitted, it was possible.
Thanks to the work of the National Center for Charitable Statistics (NCCS) at the Urban Institute the website at Form990.org offered a web based version of software to complete the form and every step of a process to prepare an electronic 990 and ship it off through cyberspace to the IRS.
A historical note: The editor of Nonprofit Online News, Michael Gilbert, worked with the founder of the Internet Nonprofit Center, Cliff Landesmann, on a demonstration project for e-filing in the late 1990s. You can read a summary of a 1998 talk by Cliff dispelling "8 Myths About Electronic Filing". Cliff registered the domain Form990.org and used it to test out ideas for representing the 990 in XML and online collection of the data needed for the form. As NCCS developed it's capacity to work on the implementation of e-filing, that domain and the results of these early explorations were passed along to become part of the foundation for this year's breakthrough.
There's still work to be done.
The facility that NCCS has put up online currently handles only the 990-EZ, which is used by smaller organizations, and Form 8868, for requesting an extension of the due date; a version for the full 990 is promised for later this year.
The NCCS software is not designed to import data automatically; to use it the fields on the 990 must be filled in one at a time by typing the required information.
And, in spite of the great effort that has been invested in translating this complicated form into a WWW version, it's not always obvious what the user is supposed to do next. One example: In the attachment format the software is designed to create multiple lines and thus allow an entry with more characters than will fit in the text-entry box. But there's no hint that this will be the result before the first time the "Save Record" button is pressed.
The actual filing process is convoluted. The "complete this form" button is located obscurely at the bottom of one of the pages of instructions. Plus, though this can hardly be laid at NCCS' feet, the IRS document that must be signed and faxed as a final step seems to have been issued originally for some other purpose so the instructions and fields have an odd oblique relationship to the seemingly straightforward task of certifying "Yes, I meant it when I sent you the 990 for such-and-such an organization just now."
All that aside, I successfully completed the data-entry and submission for the simple 990-EZ for The Evergreen State Society in a couple of hours. While I was doing it, I enjoyed several of the advantages that e-filing supports. Among them:
Much of the math on the form was done for me. I didn't run the risk of sending in a form with an embarrassing, and potentially costly, mistake made while adding up some column of figures or transposing the results from one line to another.
All the attachments are neatly typed in a consistent format, numbered correctly and packaged with the return itself.
At verification, the software soberly informed me that the name in the IRS files for my organization differs from the name I had put on the form. The IRS refuses to accept that The Evergreen State Society's real name actually does begin with a definite article (the). And it suggested this difference might make it difficult to identify the return properly. So, I gave in and changed the name on the form.
When I was finished, I could easily open and save a PDF file of the completed return. That means I have one to post on the Society's website and to print out in response to a request, if anyone should ever ask.
If I had needed to file my 990 in either Colorado or Pennsylvania, the two states that have things set up for e-filing of local reports as well as the federal form, I could have done that all at the same time with no extra muss or fuss.
In mid-April, NCCS hosted the annual meeting where members of the National Association of State Charities Officials, representatives of nonprofit umbrella groups, and IRS staff get together to talk about Form 990. At the meeting last month, which I attended, there was a good deal of genuine celebration around the progress that has been made in making electronic filing a reality. Steve Miller, director of the Exempt Organizations Division of the IRS, presented Linda Lampkin of NCCS with an award in recognition of her organization's leadership in making e-filing possible; at the moment, theirs is the only widely available software for doing the job. There was some discussion about how to encourage more nonprofits to file electronically. (In a recent survey of nonprofits, 73% said they would be likely to do it under the right conditions.) There was general agreement that the next step is to get nonprofit accounting software publishers on board supporting electronic filing. This sort of question is the bread-and-butter work of the Electronic Data Initiative for Nonprofits; anyone with an interest in this subject will want to sign up for the online newsletter EDINews.
At the April meeting, Karl Emerson talked about the advantages of e-filing of reports to his office as the charity regulator for Pennsylvania. He reported that it takes three mouse clicks for a completed form to be integrated into the online database maintained by the state's Bureau of Charitable Organizations. As a result, corrected addresses, new officers' names, the most recent data for all the information required for registration in Pennsylvania, is immediately available to the public, researchers, journalists and regulators. As the number of e-filers grows, he said, Pennsylvania will increasingly be able to turn its attention from simply coping with a flood of paperwork to more actively supporting good public information about charities and the work they do. Including, of course, pursuing cases where misdeeds may have occurred, but more importantly helping to assure prospective donors and other stakeholders of the bona fides of the organizations that are doing everything right.
Unfortunately, the initiation of e-filing won't bring that same benefit to the IRS and users of the IRS data, since the procedures are not yet in place for the federal government to update its online data files as the electronic returns are received.
It is possible to get some of this same benefit even though the IRS isn't ready to update their records from the e-filed 990s yet. As soon as I finished my 2003 990 and saved the PDF file that the NCCS software prepared for me, I uploaded it to the website and created a link from the brief report we published some time ago on the "Highlights of 2003". It was kind of satisfying to be able to post that information online without delay and in exactly the same form the IRS will see it.
I believe that most nonprofit organizations would greet more timely publication of data based on the officially filed 990s as a genuine benefit of e-filing. Having recent information about their own work online would help in communicating with donors, foundations, journalists and other observers. Having recent information about others' work available online would help in benchmarking, program planning, and satisfying plain old curiosity about what counterpart organizations are doing. And of course, having the same updated information available promptly from both governmental and private sources would reduce confusion, and eliminate occasions for needless suspicion, for everyone who tries to use official data to explore nonprofit America.
I hope the IRS will move swiftly, in cooperation with the state charity regulators and the National Center for Charitable Statistics, to update the information provided to the public by taking advantage of data received from nonprofits in electronic form.
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