Electronic filing of the annual information returns filed by nonprofit organizations will enhance tax compliance and transparency, improve oversight and enforcement by the Internal Revenue Service, and provide more timely, accurate information to the public. Currently, the IRS does not have the statutory authority to require electronic filing of the Form 990 by organizations that submit fewer than 250 returns (including W2s and other forms).

E-Filing Talking Points

• Electronic filing of the annual information returns filed by nonprofit organizations will enhance compliance and transparency, improve oversight and enforcement by the IRS, and provide more timely, accurate information to the public.
• The IRS re-designed the returns in 2008 to gather clearer and more accurate information about nonprofit organizations and public disclosure of the forms will be , based on the assumption that all or most returns will be filed in the future by electronic means.
• The public, nonprofit organizations and the government will not fully benefit from the improvements to the Form 990 until most nonprofit organizations are required to file their returns electronically.
• The Internal Revenue Code should be amended to give the IRS authority to expand the scope of returns that are required to be filed electronically by lowering the number of returns that trigger the requirement to file electronically from 250 filed per year to five per year.

Background

The annual information return (Form 990) filed by nonprofit organizations serves as the primary document providing information about an organization’s finances, governance, operations, and programs for federal regulators, the public, and many state charity officials. Research has shown that many returns filed include inaccurate or incomplete data. Review of these returns by the Internal Revenue Service is currently a costly, labor-intensive, manual process. When returns include inaccurate or incomplete data, the IRS sends a notice to the filing organization which must submit an amended return which can add considerable time before the complete, correct information is available to the public and regulators.

Electronic filing will promote effective tax form preparation and tax administration by providing feedback on incomplete and potentially inaccurate information before returns are filed. Electronic filing software provides organizations with immediate checks on incomplete and potentially inaccurate information before they file returns, and e-filing also allows the IRS to provide immediate feedback to organizations about incomplete returns and those with obvious inaccuracies.

The IRS currently has the authority to require larger organizations to file electronically. Entities with assets of more than $10 million are required to file electronically if they filed more than 250 returns (including W-2s and other returns). Private foundations with at least 250 returns are also required to file Form 990-PF electronically, regardless of total assets. Legislative action is needed to require organizations that file at least five tax forms to file their informational returns electronically.

Last updated: June 18, 2009  

Resources

• Independent Sector IRS Form 990 Resources
• E-file information on the IRS website
• E-filing notification (Form 990-N) for small organizations