July 9, 2019
By: Janna Goudarzi | Nonprofit Tax Manager
Signed into law by President Trump on July 1, 2019, the Taxpayer First Act (the Act) was proposed to modernize and improve the Internal Revenue Services (IRS). The new law requires all tax-exempt organizations with a filing requirement (Forms 990, 990-PF, 990-EZ, and 990-T) to do so electronically. In addition, Section 527 political organizations are now required to e-file their periodic contribution and expenditure reports (Form 8872).
Mandates E-file for Exempt Organizations
Prior to the new law, mandatory e-filing only applied to tax exempt organizations that had assets of over $10 Million and filed 250 or more IRS returns (including, e.g. Forms W-2 and 1099). Starting in 2021, almost all tax-exempt organizations will be required to e-file. The new law will affect organizations with a calendar year beginning January 1, 2020, (returns due May 15, 2021), and fiscal year filers with a tax year beginning after July 2, 2019 (with returns due dates beginning November 15, 2020 and after). Because the law was written to take effect the day after it was enacted (July 2, 2019), organizations with a fiscal year starting July 1, 2019 will not be required to e-file until November 2021 (tax year July 1, 2020 – June 30, 2021).
Small organizations (those with average gross receipts of less than $50,000) have already been tasked with mandated e-filing. Since its inception, filers of the Form 990N postcard have been required to e-file through the IRS’ website directly or by using a tax software approved by IRS.
The new law allows the IRS to delay implementation of the mandatory e-filing for small organizations (i.e., those with gross receipts less than $200,000 and total assets less than $500,000) for up to two years. The new law also allows for a delay for up to two years, for organizations required to file a 990-T to report unrelated business income. Note: the IRS does not currently have the capability to accept e-filed Forms 990-T as it does with Forms 990.
Accountability and Transparency
In addition to the e-file mandate, the Act also requires IRS to make Form 990 information readily available to the public “as soon as practicable in a machine readable format”. This information may not be available in format the general public can analyze, but we anticipate this information will be made more readily available via third parties (e.g. watchdog and rating agencies). With this in mind, organizations should focus on the importance of their Form 990 and the important story it tells. For more information on leveraging Form 990, read our blog post, Your Secret Nonprofit Fundraising Weapon: IRS Form 990.
Any organization that fails to file a Form 990 for three consecutive years will automatically lose its tax-exempt status. Following that action, the revoked organization must apply to have its status reinstated, which can be a costly and time-consuming process. As part of the Act, IRS is now required to notify organizations who have not filed an annual return for two consecutive years, but this wakeup call will only be effective if the organization has provided IRS current contact information. Regardless of their filing status, organizations should always keep IRS informed of any changes to their contact information.
If you have questions about the Act, or the impact it may have on your organization, contact Richard J. Locastro, CPA, JD, Partner and Director of Nonprofit Tax at firstname.lastname@example.org or 301-951-9090.