The Taxpayer First Act (HB 3151) cleared the way for reforms aimed at improving the tax return process for taxpayers. However, it also introduces some new protections and requirements for nonprofit organizations.
The Taxpayer First Act changes the management and oversight of the Internal Revenue Service (IRS) and includes provisions to combat identity theft and tax refund fraud. It calls for an automated system to verify taxpayer information, modernizes technology within the IRS, and expands the use of electronic information systems.
Specific to nonprofit and higher education institutions, this act impacts tax filing business processes in a few ways.
Electronic File Requirements
All tax-exempt organizations must now electronically file their annual Forms 990, 990-PF, 990-EZ, and 990-T. This requirement goes into effect for organizations with a calendar year beginning on or after Jan. 1, 2020 (returns due May 15, 2021), and for fiscal year filers with a tax year beginning after July 2, 2019 (returns due beginning November 15, 2020). Organizations currently exempt from filing Forms 990 are not affected by the law.
Forms 990 – Where there was a minimum asset threshold before, organizations smaller than $10 million are no longer permitted to paper-file their Forms 990. In fact, paper filing options for organizations will be entirely discontinued by 2022.
Forms 990EZ and 990-T– Organizations filing the Form 990EZ (gross receipts less than $200,000 and assets less than $500,000) might receive transitional relief from IRS for up to two years, but the IRS has not yet acted to extend such relief. For the Form 990-T (tax return where exempt organizations report unrelated business income), the IRS does not yet have the systems available to accept electronic filing. However, it is expected to accelerate the development of that process in order to meet the requirements of the new law.
Notification of Tax-Exempt Status Revocation
For organizations that have not filed a Form 990 for three years, the Taxpayer First Act requires the IRS to contact organizations before revoking tax-exempt status. Previously, the IRS was not required to send such notice; the exempt status was automatically revoked, many times without an organization even realizing it until it was too late. This new requirement should help organizations keep in compliance with their filing requirements and maintain their tax-exempt status.
Public Availability of Form 990
Also important to nonprofits and higher education institutions is the laws mandate to the IRS to make all Forms 990 electronically available to the public “as soon as practicable in a machine readable format.” Organizations should note that these filings will continue to be readily available to the public, increasing the importance of the 990 presenting the best insights available.
If your organization has not yet integrated the process of electronic filings for your Forms 990, 990EZ or 990-T, reach out to your nonprofit CPA firm for guidance.
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