The Promises and Perils of Using Big Data to Regulate Nonprofits

By Mayer, Lloyd Hitoshi | Washington Law Review, September 1, 2019 | Go to article overview

The Promises and Perils of Using Big Data to Regulate Nonprofits


Mayer, Lloyd Hitoshi, Washington Law Review


INTRODUCTION

On May 8, 2015, the Commissioner of the Internal Revenue Service's Tax Exempt and Government Entities Division highlighted the new "data-driven approach" the IRS would take to capitalize on the "tremendous amount of information" it collects.1 She was elaborating on an internal "Program Letter" released late in 2014 that referred to "DataDriven Decision-Making" but provided almost no explanation of what this term meant other than cryptic commitments to develop "sophisticated analytics," to conduct "analysis to identify opportunities to improves processes," to apply "analytics and research to improve program effectiveness," and to allocate resources "using a data-driven approach to target existing and emerging high-risk areas."2 For anyone familiar with recent technological developments, however, these buzzwords signaled that the IRS was moving in a new direction with its oversight of tax-exempt nonprofit organizations in the United States that could be boiled down to two words: Big Data.

Oversimplifying, Big Data refers to the collection and analysis of information that is so large in scope, changes so rapidly, and varies in structure to such an extent that it is not amenable to conventional database techniques of the recent past, but instead requires sophisticated computerized methods to adequately gather and learn from this information.3 Rapid improvements in storage capacity and computing power have made it possible to both collect and analyze such data. While the term Big Data as it is used today is only a little over twenty years old, it already has developed technological, academic, and societal meanings.4 At its heart, however, Big Data refers to the rapid accumulation of digital data, from social media posts to cell phone locations, as well as efforts to use such data to discover significant patterns that inform and improve public policy making, business decisions, and personal choices.5

A couple of noteworthy examples have highlighted the potential benefits and dangers of Big Data. Starting in 2002, retailer Target used customers' shopping patterns to determine if it was likely they were pregnant.6 While Target apparently did this only so it could better customize its advertising to those customers, it was wisely wary about how its customers would react if they learned how much Target knew about them (including one instance where a father learned his teenage daughter was pregnant because she received baby-related Target ads in the mail).7

Government use of Big Data can be even more unnerving. Edward snowden famously disclosed that the National security Agency had been collecting telephone metadata-such as the time and location of calls, as opposed to their content-for every call generated by Verizon customers, so that these data could then be analyzed using various methods to identify certain connections of interest.8 While Congress reacted to these disclosures by amending the relevant federal statutory provisions, it is unclear whether those amendments prevent continued collection of such data.9 Other government uses of Big Data methods include environmental protection and Medicare and Medicaid fraud prevention.10

The IRS's Big Data move with respect to nonprofits highlights that data about such organizations may have reached a critical tipping point in several respects. First, the IRS's improved analysis of the information it already collects raises the possibility of more efficient, effective, and transparent federal oversight of nonprofits. Second, state regulators are striving to enhance their own oversight capabilities by centralizing their collection of information relating to charitable nonprofits through a "Single Portal" initiative.11 Third, as a result of long-standing federal laws, recent litigation, and the efforts of several private organizations, the data collected by the IRS are also generally accessible to the public, including journalists and researchers, with even greater access in the future given the recent enactment of legislation to expand the electronic filing obligations of tax-exempt nonprofits. …

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