Requiring all tax-exempt organizations, regardless of size, to file their annual tax forms electronically was among the recommendations put forth by an Internal Revenue Service (IRS) subcommittee last week.
The report of the Exempt Organizations Subcommittee of the IRS Advisory Committee on Tax Exempt and Government Entities (ACT), released during its annual public meeting recommended that the IRS:
- Encourage and support a Congressional mandate to require electronic filing of the Form 990 series and should also take interim steps to encourage and provide incentives for voluntary e-filing of the Form 990 series for exempt organizations that are not subject to the mandatory e-filing requirements. The IRS should recommend to the Department of Treasury the elimination of the $10-million asset threshold for electronic filing of the Form 990 found in the Internal Revenue Code Section 6011 regulations.
- Convene a task force comprised of representative stakeholders to determine which parts and schedules of the current Form 990 and related instructions should be updated, enhanced, and/or deleted to allow a more clear understanding, better accuracy, enhanced consistency of reporting by the various Form 990 filers.
- Consider requesting additional information from Form 990-N filers. This will be especially important given the relatively new Form 1023-EZ application process, which will result in more recognized tax-exempt organization that will not have activities specifically reviewed by the IRS and likely will file a Form 990-N due to their smaller size. Because filing a Form 990-N likely will be an organization’s only contact with the IRS, the agency should engage in more education and outreach as part of the filing process.
The ACT this year focused on revising the Form 990 in light of several years of exempt organizations’ preparing, filing and effectively “living with” the new reporting and transparency provided by the enhanced Form 990 and 990-EZ, and the Form 990-N, which prior to 2007 was not required to be filed by smaller exempt organizations. The IRS revamped the Form 990 in 2008. The tax form is filed by organizations that generally have gross receipts of at latest equal to $200,000 or total assets at least equal to $500,000. Almost 290,000 exempt organizations filed Form 990 in 2013.
The current Form 990 is a 12-page return with 16 supplemental schedules, of which most exempt organizations file only fix or six of them. Between 1979 and 2008, there were minor updates to Form 990 and prior to the overhaul was comprised of nine pages and two schedules.
In developing ACT Report, the committee sent an estimated 148,000 users of the Form 990 a questionnaire and received nearly 1,900 responses (less than 2 percent). During in-person and conference call “roundtables” with various stakeholder groups prior to developing the questionnaire, the committee reported that four themes developed around the Form 990 and its data:
- Vast support for e-filing and open data for the sector;
- A desire for increased breakdown on contributions, government grants, governmental contract income and other forms of support;
- Coordination with state charity officials on their data needs; and,
- Incorporation/inclusion of meaningful “NTEE-type” codes.
Less than 2 percent of Form 990 filers, and less than 6 percent of Form 990-EZ filers, said it would be negatively affect their organization if they were required to file the forms electronically.
The number of organizations that file a Form 990-N is up almost 12 percent in the last two years, from 475,472 in 2012 to 531,310 in 2014, according to the report.
The Pension Protection Act of 2006 (PPA) required that organizations at least file a Form 990-N, or postcard, with basic information about the organization. If nonprofits had not filed in three years, their exemption would be revoked. Of the 594,000 organizations that lost tax-exempt status for failing to file Form 990, many of which were not operational, about 11 percent, or 68,000, reapplied and were reinstated.
In discussions with individual IRS exempt organizations managers, the committee identified advantages of all-electronic filing
- Higher use of Form 990 data for tax compliances and other reasons. EO Division only uses from the e-filed returns the same information that’s manually transcribed from paper returns for its data analytics functions, for parity reasons.
- More complete returns. IRS could eliminate incomplete return program since e-filed returns must be complete before being accepted for electronic filing.
- Financial savings. The IRS would save $350,000 in data conversion and $250,000 from a reduced need to conduct quality assurance checks, according to the Aspen Institute.
- Reduce human error from manual input and review.
- Open data for the sector and comparability. Organizations could better compare themselves to peer organizations if the data becomes searchable.
President Obama’s Fiscal Year 2016 proposals include a requirement that all tax-exempt organizations file Form 990 electronically and make them publicly available in a machine-readable format, and in timely manner. The day before the ACT presented its recommendations at its annual public meeting, Sens. Charles Grassley (R-Iowa) and John Thune (R-S.D.) introduced S. 1578, which would require all exempt organizations to electronically file their Form 990, which also has been proposed in the House and by the administration.
In January, a U.S. District Court ordered IRS to produce nine requested Forms 990 in Modernized E-file (MeF) format to Public.Resource.org within 60 days. The California nonprofit took the IRS to court after the agency asserted it would have to shift resources and develop protocols to produce the documents in redacted form.