Electronic filing of the annual information returns filed by nonprofit organizations will enhance tax compliance and transparency, improve oversight and enforcement by the Internal Revenue Service, and provide more timely, accurate information to the public. In general, only the largest and smallest tax-exempt organizations are required to electronically file their annual information returns and the IRS does not have the statutory authority to require that all tax-exempt organizations electronically file the Form 990.
Independent Sector has long supported efforts to expand electronic filing of the Form 990 series, including participating in the Urban Institute Form 990 e-filing initiative.
On November 20, 2013, Senate Finance Committee Chairman Max Baucus (D-MT) released a tax reform discussion draft on tax administration issues as part of a series of drafts on tax reform legislation. Included in the tax administration discussion draft is a proposal to mandate that all tax-exempt organizations required to file a Form 990-series return do so electronically, and the IRS would be required to make the information on the forms available to the public in a machine-readable format as soon as practicable.
A waiver of the e-filing requirement would be permitted if there is limited or no access to the technology to file the returns electronically, as well as transitional relief in the form of a delayed effective date of up to three years if the requirement presents a hardship.
Independent Sector submitted comments on the discussion draft in January 2014, supporting both the expansion of e-filing and provisions to assist organizations that may experience difficulty complying with e-filing requirements.
E-Filing Talking Points
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. Review of these returns by the Internal Revenue Service is currently a costly, labor-intensive, manual process. When returns include inaccurate or incomplete data, the IRS sends a notice to the filing organization which must 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.
Last updated: December 1, 2013