Electronic filing is anything but new. It was implemented in 1986 as a test program and began in earnest in 1990, but it didn’t become a requirement for most taxpayers until recently. On July 1, 2019, Congress enacted a tax law that requires nonprofits and other tax-exempt organizations to file their returns electronically. The IRS delayed the effective date for some tax-exempt organization forms, but most organizations will be required to e-file beginning with their 2020 returns.
More About the E-filing Mandate
The 2019 Taxpayer First Act amended and repealed a wide variety of tax provisions affecting both tax-exempt and for-profit entities. Although this tax law was broad, its goal was to improve taxpayer/IRS interactions, better protect taxpayer data, and modernize the IRS’s operations, especially when it came to its use of electronic systems.
One section of the Taxpayer First Act changed how tax-exempt organizations file their tax returns. For tax years that begin after July 1, 2019, exempt organizations must electronically file all informational, income, excise, and penalty tax forms. This includes the following forms:
- Form 990, Return of Organization Exempt from Income Tax
- Form 990-EZ, Return of Organization Exempt from Income Tax (Short Form)
- Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation
- Form 990-N, Electronic Notice (e-Postcard)
- Form 990-T, Exempt Organization Business Income Tax Return
- Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations
- Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code
- Form 8872, Political Organization Report of Contributions and Expenditures
- Form 1065, U.S. Return of Partnership Income (if filed by a Section 501(d) apostolic organization)
Unlike in previous years when e-filing was only required for exempt organizations with at least 245 employees or reported assets of at least $10 million, this mandate applies to virtually all nonprofits and charitable organizations. Going forward, only in limited circumstances can a tax-exempt organization escape the e-filing requirement.
Returns for tax years that begin after July 1, 2019, must now be electronically filed, but if your organization is on the smaller side, you may be given extra time to comply. The deadline has been extended by one year for entities that file Form 990-EZ (i.e., those with gross receipts less than $200,000 and total assets less than $500,000). This means that these entities must electronically file Forms 990-EZ beginning with tax years that end July 31, 2021, or later.
The IRS provided e-filing relief to taxpayers filing certain forms:
- Any 2020 Form 990-T with a due date on or after April 15, 2021, must be filed electronically and not on paper.
- Any 2020 (and future year) Form 4720 filed by a private foundation with a due date on or after July 15, 2021 must be filed electronically and not on paper.
What Nonprofits Should Do to Comply
If you have filed paper tax forms in the past, the IRS will send you a letter notifying you of the new requirements. If you continue to paper file your returns even after the mandate’s effective date, the IRS may send your paper form back to you to be resubmitted electronically. This delay could result in the IRS flagging your tax return as filed late, so it’s important that you abide by this new tax law.
Fortunately, e-filing tax returns is easier than you might think. If your practitioner uses one of the IRS’s pre-approved software providers to file your return as we do at MST, your electronic forms will be sent directly to the IRS, and there’s little you will need to do on your end to comply. Tax-exempt entities can have complex reporting requirements, so it’s important that you find a practitioner that not only uses IRS-approved software but one that is well-versed in nonprofit tax filings. MST has been assisting charities and nonprofits with tax preparation since its inception in 1956. We are well prepared to handle any potential issues that arise when tax filing season is upon us.
If you have questions regarding your tax-exempt entity’s taxes, we are here to assist you.