How the IRS keeps the $4.3 trillion nonprofit world secret

(Photo by Andrew Harrer/Bloomberg)
(Photo by Andrew Harrer/Bloomberg)

You've heard about the the Internal Revenue Service's habit of targeting conservative 501(c)(4) applicants for close scrutiny. You've also by now heard the criticisms that the IRS gave too little scrutiny to many other politicized groups that applied for 501(c)(4) nonprofit status. But Carl Malamud is suing the IRS over a problem you probably haven't heard about: the agency's unwillingness to let the rest of us easily scrutinize nonprofits.

Malamud, a California-based transparency activist, knows a few things about liberating public records. He's the reason the Securities and Exchange Commission started putting the submissions of public companies online back in the 1990s, why you can see so many hearings on C-SPAN, and why lists of legally enforceable codes and standards may finally become available for free. He's been badgering the IRS to put nonprofit data online for over a year now, and in the meantime, has uploaded the last decade's worth of 990s to his Web site Public.Resource.org. It costs him a few thousand dollars a year -- a considerable sum for his small organization, but nothing for a massive government agency.

Nonprofit tax filings -- known as Form 990s -- are, technically, public. Sure, you can go to a service like Guidestar and pay to pull the full PDF file for each individual group, scanning through data fields until you come across juicy tidbits like salaries, revenue and expenses.

But here's what you can't do: You can't search all nonprofits by each of those fields, like you can with lobbyist disclosures and campaign donations, which has allowed groups like the Sunlight Foundation and Center for Responsive Politics to build amazing data-crunching tools for learning how politicians and special interests are linked.

The 990s are probably even more important than all those fundraising reports. The nonprofit sector is way bigger than the influence industry, bringing in $1.87 trillion and sitting on $4.3 trillion in assets in 2009, which accounts for 9.2 percent of all wages and salaries paid in the United States. As the Aspen Institute argued in a paper earlier this year, if their 990s were made available in machine-readable format, it would be a lot easier to spot fraud and abuse, see where charitable resources are being deployed and understand their role in the economy.

The Obama administration has recognized the value of open data. The president issued an executive order back in May saying some of these exact same things. Last November, U.S. Chief Information Officer Steve VanRoekel and Chief Technology Officer Todd Park asked Malamud to come to Washington to explain how such a system might work, and they appeared excited to make it happen. But IRS officials worried that large nonprofits might object to making their tax information "too transparent," according to Malamud, and that the smaller ones might just file on paper to avoid it.

In February, Malamud filed a Freedom of Information Act request for all 990s in machine-readable format. It was denied, on the basis that the essential information was already adequately available in raw PDFs.

So on Tuesday, Malamud filed a lawsuit in U.S. District Court in California's Northern District to overturn that denial -- and get those numbers in crunchable form faster than it would take the administration to prod the IRS into making it official policy.

"My hope is that the government will agree to non-binding arbitration and that the White House agrees to join the IRS in looking at this situation seriously," Malamud writes in an e-ail. "I'm convinced they'll release the database if they're forced to look at the issue."

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.
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