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IRS Advisors Asking Congress to Mandate Electronic Filing

An Internal Revenue Service subcommittee put forth a recommendation to require all tax-exempt organizations to file their annual tax forms electronically. During its annual public meeting, the subcommittee, IRS Advisory Committee on Tax Exempt and Government Entities (ACT), recommended the following changes to the IRS:

  • Support a Congressional mandate to require electronic filing of the Form 990 series and should also take interim steps to provide incentives for voluntary e-filing of the Form 990 series for exempt organizations that are not subject to the mandatory e-filing requirements (such as churches). 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.
  • Create a team of individuals to review the current version of Form 990 and related instructions to find areas to 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 committee sent a questionnaire to organizations who file the Form 990. Less than 2 percent of Form 990 filers, and less than 6 percent of Form 990-EZ filers, said filing an electronic version of the annual form would negatively affect their organization. The ACT committee identified several advantages of all-electronic filing, specifically that such changes would save the IRS time and money. Through electronic filings, the IRS would eliminate their incomplete return program since e-filed returns must be complete to be accepted for electronic filing. ACT also believes the IRS would save $600,000 in data conversion and reduced need to conduct quality assurance checks. Electronic filings will also make the data collected by this annual filing easily accessible to the general public. ACT believes this will help organizations better compare themselves to similar organizations if the data becomes searchable online.

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 the IRS to produce nine requested Forms 990 in Modernized E-file (MeF) format to 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.

For more information, read this report from The Nonprofit Times.

Greg McRay, EA

Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

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