Jason Havens is a Partner and Kelly Hellmuth is a Senior Counsel in Holland & Knight's Jacksonville office
- The Taxpayer First Act, which was signed into law by President Donald Trump on July 1, 2019, changed the requirements for tax-exempt organizations to require electronic filing of all returns in the Form 990 series and Form 8872.
- Previously, only small organizations choosing to file the Form 990-N, private foundations and section 4947(a)(1) trusts that file at least 250 returns annually, and large organizations that have total assets of at least $10 million and that file at least 250 returns annually were required to e-file their returns. Even then, the IRS permitted certain exceptions.
- All tax-exempt organizations should take note that this requirement is effective for tax years that begin after July 1, 2019.
"To err is human; to really foul things up requires a computer." – William E. Vaughan
Tax-exempt organizations are now required to electronically file all returns in the Form 990 series (Return of Organization Exempt from Income Tax) and Form 8872 (Political Organization Report of Contributions and Expenditures) returns. The Taxpayer First Act (Pub.L. 116-25) (Act), which was signed into law by President Donald Trump on July 1, 2019, changed the prior rules to mandate the electronic filing requirements. However, this new e-filing requirement is effective for tax years that begin after July 1, 2019. Thus, for most organizations, including those on a June 30 fiscal year-end, the new e-filing requirement won't come into play until 2021 or later. In addition, the Act provides for certain transitional relief. The Treasury Secretary may delay the e-filing requirement for up to two years for organizations with gross receipts less than $200,000 and total assets less than $500,000. These guidelines mirror the thresholds for the organizations that are permitted to file Form 990-EZ, rather than the full Form 990.
Under prior law, only certain organizations were required to file their annual returns electronically – namely, large organizations with total assets of $10 million or more, who file at least 250 returns annually, as well as private foundations and section 4947(a)(1) trusts that file at least 250 returns annually. In addition, organizations normally having gross receipts of $50,000 or less (other than supporting organizations) had the option to file Form 990-N, which is only available electronically, but otherwise could choose to file a paper Form 990-EZ or Form 990 return by mail.
The Act also permits the Treasury Secretary to delay the e-filing requirement for organizations for which this requirement would cause an undue burden without a sufficient delay. This provision hopefully will allow the Internal Revenue Service (IRS) additional time to update its system to accept all returns from every tax-exempt organization for electronic processing, given that the IRS system currently does not permit certain organizations to file electronically – even voluntarily. These organizations include 1) organizations that have changed their name, where supporting material must be attached to a paper return; 2) organizations filing short-year returns (other than for the initial or final years) or showing a change in accounting period; 3) organizations that are not yet recognized as being tax-exempt, such as those with an exemption application pending; and 4) private foundations during a 60-month termination period.
Currently, IRS Notice 2010-13 provides certain exempt organizations with the ability to request a waiver from the regulatory e-filing requirements (or the penalties for failure to file), particularly where the organization cannot meet the requirement because of technology constraints or where compliance would result in an undue financial burden on the organization. However, presumably such waivers will no longer be available in the future under the new statutory requirement.
Other transitional relief in the Act applies to organizations filing Form 990-T (Exempt Organization Business Income Tax Return) to report unrelated business taxable income or the payment of the proxy tax under Code Section 6033(e). Form 990-T is not currently available to be filed electronically. Thus, the Act allows the Treasury Secretary to delay the Form 990-T e-filing requirement for up to two years.
The Act also requires the IRS to make all electronically submitted returns filed by tax-exempt organizations to be made available to the public in a machine-readable format as soon as practicable. By making this information widely available, not only the public but also state regulators will likely utilize the comprehensive electronic filings to analyze and, where appropriate, scrutinize tax-exempt organizations' electronic – and fully text-searchable – returns.
While Congress lauded these provisions as a way to make compliance easier for tax-exempt organizations and to improve transparency by having electronically filed returns more accessible to the public, the IRS will have an uphill battle to update its system to implement the new requirements. Meanwhile, organizations can brush up on the current ways to submit electronic returns through an approved IRS 990 e-File Provider by reviewing the IRS e-file FAQ.
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