Exempt Organization E-Filing Requirements
In July 2019, the Taxpayer First Act (Act) was signed into law and aims to make the IRS more taxpayer-friendly. The Act requires the IRS to modernize its technology and prescribes new rules for electronically filing Forms 990, 990-PF and 990-T. In a news release published on December 13, 2019, the IRS reminded tax-exempt organizations of these new rules and provided guidance for compliance.
Previously, filers of Forms 990 and 990-PF were required to e-file if revenue exceeded $10 million and more than 250 returns were e-filed, including forms such as W-2s and 1099s. Now, all filers of Forms 990, 990-PF and 8872 are required to e-file in tax years beginning after July 1, 2019. The first full fiscal year affected will be July 31, 2020 (August 1, 2019, to July 31, 2020), and the due date will be December 15, 2020. If your organization previously filed a paper form, the IRS will be sending a letter of the change.
The IRS is allowing 990-EZ filers to briefly postpone e-filing until tax years ending August 31, 2020, and later, which they refer to as “transitional relief” for small filers. In general, Form 990-EZ is available for organizations with annual gross receipts less than $200,000 and total assets at tax year-end of less than $500,000. This transition relief will have limited application, as it only effectively postpones the e-filing requirement for one month from fiscal year-ends of July 31, 2020, to August 31, 2020.
While the Act also included an e-filing requirement for Form 990-T, Form 990-T isn’t yet set up for e-filing within the IRS system. The release stated the IRS plans to have these returns ready for e-filing in 2021, which will likely affect 2020 tax years and beyond. Many see this as a welcome change because most organizations have been e-filing Form 990 or 990-PF and paper filing Form 990-T. Once the 990-T is available for e-filing, all federal tax and information returns for exempt organizations will be e-filed. Many states have begun adopting an e-filing system for corresponding filings as well.
Organizations that have previously paper filed Form 990, 990-PF or 990-EZ should take steps now to convert to e-filing. These forms can be filed electronically only through an Approved IRS Exempt Organizations Modernized e-File (MeF) Provider. Therefore, filers should consider engaging a firm for tax preparation and/or review or purchasing software. Filers who disregard these rules could face hefty penalties if the IRS deems the return not filed. After three consecutive years of nonfiling, tax-exempt status can be revoked. Don’t wait to act on these new requirements.
To access a full copy of the news release, visit the IRS website. For questions or comments regarding the requirements to electronically file information returns and related forms, reach out to your BKD trusted advisor or use the Contact Us form below.