E-filing the Form 990

THE ISSUE
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.

latest news
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.

Senate Finance Tax Administration draft would mandate e-filing for all
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 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.

IS Position

Independent Sector has long supported efforts to expand electronic filing of the Form 990 series and is a partner in the Urban Institute's Form 990 e-filing initiative.  
  • Electronic filing of the annual information returns filed by nonprofit organizations will enhance compliance and transparency, improve oversight and enforcement by the IRS, and provide more timely, accurate information to the public.
  • The IRS re-designed the returns in 2008 to gather clearer and more accurate information about nonprofit organizations and public disclosure of the forms will be based on the assumption that all or most returns will be filed in the future by electronic means.
  • The public, nonprofit organizations and the government will not fully benefit from the improvements to the Form 990 until most nonprofit organizations are required to file their returns electronically.

Background
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.

Resources

IS Comments to Senate Finance Committee (January 2014)

Join IS Today