MLR

Machine-readable Forms 990 soon available

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The IRS recently lost a lawsuit to Public.Resource.Org, Inc., but its loss may result in greater protection of sensitive taxpayer information.

The U.S. Court of Appeals for the Ninth Circuit in California found that, under the Freedom of Information Act, the IRS was required to provide Public.Resource.Org, a nonprofit corporation that provides public access to information, with a small set of Forms 990. The IRS raised objections to doing this based on cost concerns, but the court ordered the agency to comply anyway.

The problem is that certain information contained on Form 990 (Return of Organization Exempt from Income Tax) is considered to be sensitive and of a personable nature. For this reason, it must be protected from public distribution.

In complying with the court’s decision, the IRS had to manually copy certain portions of the Forms 990, which are available to the public. They then had to assemble this information and send it out to the interested party. This procedure is time-consuming and expensive.

As it stands right now, if the IRS were to send an electronic file to an interested party to comply with the law, that electronic file would contain all of the information on the Forms 990, including the sensitive and personal information that is not to be released to the public.

In response to the court’s requirement to provide the Forms 990, the IRS announced that it was considering using new technology to produce electronic versions of the publicly available portions of exempt organization returns in machine-readable form. Machine-readable is not a format that the IRS has historically used to make Forms 990 available.

With the new technology, the IRS will be able to send the whole electronic file to the interested party, which will be able to print out only the information on the return that is approved for public disclosure. The sensitive personal information will be kept confidential. The interested party will not be able to access this information or print it out.

Using the new technology will allow the IRS to meet the reporting requirement in a timely and cost-effective manner.