Taxpayer First Act Law Expands Mandatory Electronic Filing of Nonprofit Tax Returns

Taxpayer First Act Law (H.R. 3151) Background

H.R. 3151, signed into law on July 1, 2019, expands the requirement for charitable organizations to adopt electronic filing of their IRS Form 990 series (Forms 990, 990-PF, 990-EZ and 990-T). Currently, apart from smaller nonprofit organizations that are mandated to e-file IRS Form 990-N, most nonprofits can either file electronically or on paper. Additionally, some forms must be filed in just one format.

It is worth noting that this law does not apply to churches and their affiliates, and governmental entities.

How the Implementation of Taxpayer First Act Law Affects Your Nonprofit Organization.

While it is mostly a choice on what format to file, be it e-file or paper file, some large tax-exempt organizations are required to e-file Forms 990. Private foundations and charitable trusts must e-file Forms 990-PF if they file a minimum of 250 returns annually. It is worth mentioning although these organizations are required to e-file, they are not required to e-file extension Form 8868. Form 990-T, required of exempt organizations with unrelated business income, is not yet available for e-filing.

Under the Taxpayer First Act Law, mandatory electronic filing will go into effect in 2021 and to all by 2020. This is applicable to returns covering tax year 2020 which are due on May 15, 2021 and to fiscal-year filers for returns covering tax years starting on and after July 2, 2019, due on the 15th day of the 5th month after the end of the tax period. Nonprofits that started their new fiscal year on July 1, 2019, are required to e-file in 2021. That is for July 1st, 2020 – June 30th tax period, instead of for July 1st, 2019 – June 30th, 2020 tax period.

For organizations with fiscal years starting between July 2nd – August 31st, 2019, is slated to take up e-filing sooner. Their first electronic returns are due in November or December 2020. It is worth mentioning that these organizations have the option of filing Form 8868 for an extension to push their filing deadline into 2021. They need to e-file their Form 8868.

Possible Reprieve

The IRS may delay the implementation of mandatory electronic filing for up to two years for the following organizations:

• Nonprofit organizations with less than $500,000 in assets and with annual revenue of less than $200,000.
• Organizations filing Unrelated Business Income Taxes (UBIT).
• Organizations facing undue burden with the mandatory e-filing.

These organizations are however required to e-file beginning in 2022 when paper filing is going to be discontinued.

IRS Notifications of Tax-exempt Revocation

Per the law, the IRS is now required to send a reminder notice before any revocation of tax-exempt status for failure to file a return for two consecutive years.

Disclosure of Form 990 Return Information

This law also requires the IRS to release these data in machine-readable format as soon as feasible. Currently, the IRS makes this information only as individual images files. This makes it difficult to compile, analyze or even compare data on the nonprofit sector. By mandating electronic filing for many nonprofit organizations, the Taxpayer First Act Law will greatly streamline the assembling of forms, promote transparency, accountability, and aid enforcement and regulation.

What the Taxpayer First Act Law Means for Your Nonprofit

Information contained within the IRS Form 990 Series goes further than simply financials. It details the mission of the nonprofit, activities, organization and the way it is governed. E-filing will enable a clearer picture of an organization, better ways to compare one with another and better ways to spot red flags to aid regulations and enforcement.

Donors and other stakeholders would now demand greater transparency and accountability than before. There will be more pressure on nonprofits to release more information about their activities and the difference they are making.

Adapting to change can be a challenge as well as an opportunity for your nonprofit to tell its story, the impact it is making and attract more donors. If your nonprofit needs to file a Form 990, we can help. While Labyrinth does not provide this service, we have a network of partners who can help you with the preparation and filing of your IRS Form 990. Contact us now to be connected with one of our partners.