In general, only the largest and smallest tax-exempt organizations are currently required to electronically file their annual information returns. The IRS currently lacks the statutory authority to require all tax-exempt organizations to electronically file the Form 990.
Court orders IRS to release computer-readable tax forms
On February 5, 2015, a U.S. district court in California ruled in favor of open-records activist Carl Malamud in Public.Resource.org v. IRS, requiring the IRS to release within 60 days the requested Form 990 information returns in a format that can be read by computers. While many organizations already file their Form 990s electronically, the IRS currently converts these forms to non-readable image files after stripping out any confidential information. IRS data shows that 54 percent of Forms 990 were still filed by paper in 2013. Despite the district court's decision, the case is still continuing.
President's FY2016 budget would require all groups to e-file
President Obama's budget for fiscal year 2016, released on February 2, 2015, for the second year in a row would require all tax-exempt organizations that file Form 990 series returns (e.g. Form 990-T or Form 8872) to do so electronically or be subject to a $5,000 penalty. The proposal would grant transition relief of up to three additional years for smaller organizations and for organizations to whom e-filing would present an undue hardship. The proposal also would give the IRS authority to delay the effective date for Form 990-T filers for up to three tax years.
The annual information return (Form 990) filed by nonprofit organizations serves as the primary document providing information about an organization’s finances, governance, operations, and programs for federal regulators, the public, and many state charity officials. Research has shown that many returns filed include inaccurate or incomplete data. IRS review of these returns is currently a costly, labor-intensive, manual process. When returns include inaccurate or incomplete data, the IRS must correspond with the filing organization to re-submit an amended return, which can add considerable time before the complete, correct information is available to the public and regulators.
Electronic filing will promote effective tax form preparation and tax administration by providing feedback on incomplete and potentially inaccurate information before returns are filed. Electronic filing software provides organizations with immediate checks on incomplete and potentially inaccurate information before they file returns, and e-filing also allows the IRS to provide immediate feedback to organizations about incomplete returns and those with obvious inaccuracies.The IRS currently has the authority to require larger organizations to file electronically. Entities with assets of more than $10 million are required to file electronically if they filed more than 250 returns during a calendar year (including W-2s and other returns). Private foundations and charitable trusts with at least 250 returns during a calendar year are also required to file Form 990-PF electronically, regardless of total assets. Smaller organizations that file Form 990-N (the e-Postcard) also must electronically file.
IS Comments to Senate Finance Committee (January 2014)