Electronic Filing and Database CreationNo less important than revising the expense reporting framework would be simplifying the 990-PF to enable electronic filing. The 990 for nonprofits can already be filed electronically, and the barriers to electronic filing by foundations should be few once the unnecessary investments information requirement noted above is eliminated.
(8) Electronic filing would greatly improve the accuracy and completeness of foundation tax returns, as electronic systems require all key data fields to be filled and check automatically for errors. Electronic filing would also promote information-sharing between regulators.
These steps would allow foundation 990-PFs to be assembled into a researchable database, which in turn would allow for the development of benchmarks for expense allocations according to foundation operating style. Benchmarks would have to be used carefully, given the heterogeneity of the sector even within operating styles, but they would be a major resource to guide the activities of regulators and watchdogs.
(9)The collection of better information through a revised 990-PF and the creation of an electronic database to make that information available would facilitate the development of improved algorithms for targeting audits, thereby promoting better use of scarce regulatory resources.
Given governmental fiscal constraints and the foundation sector's commitment to improved self-regulation, a group of leading foundations would undoubtedly underwrite a public-private collaboration with the IRS to overhaul the 990-PF as outlined above. Such a group could well be the source of voluntary funding for other initiatives to improve the regulatory structure. As Marion R. Fremont-Smith observes, "with adequate funding and personnel, the Internal Revenue Service would have been able to prevent most of the abuses [the Senate Finance Committee] is addressing. It is not the code provisions that are inadequate; rather it has been the inability of the Service to adequately police the sector."
(10)Further, there is near-universal agreement that the IRS and state attorneys general should be encouraged to share information on foundations involved in questionable practices, and that most existing legal obstacles to such coordination should be removed. Coordination across jurisdictions would not address all the problems arising from the inadequacy of current regulatory resources, but information-sharing would help target regulatory efforts on the trouble spots.
