As most nonprofit leaders recognize, tax-exempt organizations must file an annual IRS Form 990. Until now, only very large or very small nonprofits were required to e-file.[1] In addition, a nonprofit could lose its tax-exempt status without prior IRS notice, upon three consecutive years’ failure to file Form 990s. But under the newly enacted Taxpayer First Act (H.R. 3151) (“Act”), effective July 1, 2019, the Form 990 filing landscape has changed significantly.
Mandatory E-Filing for All Nonprofits
First, all tax-exempt organizations will soon need to electronically file their Form 990 information returns (e.g. 990, 990-EZ, 990-N, or 990-PF) and their Form 990-T unrelated business income tax returns (if applicable).[2]The Act amends Sections 6033 and 6011 of the Internal Revenue Code (“Code”) to impose such requirement.
Prior to the Act, only certain tax-exempt organizations were required to file returns electronically, including the following: (i) tax-exempt corporations with $10 million or more in total assets, which file at least 250 returns in a calendar year; (ii) private foundations and non-exempt charitable trusts that file at least 250 returns a year, regardless of their asset size; and (iii) tax-exempt organizations with annual gross receipts of $50,000 or less, which file IRS Form 990-N. The Form 990-N has proven to be quite quick and efficient, allowing small organizations to satisfy this annual return requirement with little more than an electronic hand wave.
The newly comprehensive electronic filing requirement is effective for taxable years beginning after July 1, 2019. Consequently, a medium-sized nonprofit with a June 30 fiscal year must file electronically starting with its fiscal year ending June 30, 2021 – i.e., the tax year starting July 1, 2020. A comparable nonprofit with a calendar fiscal year may still file a paper Form 990 for tax year 2019, but then must file electronically for tax year 2020 (due in 2021). Note too that the Act however, provides the IRS with discretion to delay the effective date for both organizations eligible to file IRS Form 990-EZ and for Form 990-T filings, through which to report unrelated business income tax liability.[3]
Public Access to Electronically Filed Annual Returns
Second, in an effort to increase nonprofit transparency among the public, the Act requires the IRS to make all Form 990 returns filed electronically available to the public in a machine-readable format. This new requirement likely will improve on current availability through the IRS’s website and through Guidestar.
Notice Required Before Automatic Revocation
Third, and perhaps most significantly for small nonprofits, the Act requires the IRS to provide notice to tax-exempt organizations that have failed to file their required Form 990 annual returns for two consecutive years. The mandatory IRS notice must include a statement that the organization’s exemption will be automatically revoked if it fails to file its return for a third consecutive tax year by such return’s required due date, as is the current law.
Prior to the Act, the IRS was not required to provide notice to organizations before automatically revoking their exemption for such filing failure. Many organizations were thus quite surprised to find out that their tax-exempt status had become revoked, that a new IRS Form 1023 tax-exemption application was required for reinstatement, and that such reinstatement may not necessarily be retroactive in effect.[4]
Nonprofit leaders who are interested in checking their organizations’ tax-exempt status may search the IRS’s “Tax Exempt Organization Search”. The danger of auto-revocation, now softened by the new IRS advance notice requirement, also highlights the importance of keeping a nonprofit’s current address on file with the IRS. While reporting address changes through Form 990 filings may be helpful, a more effective course may be through filing the IRS Form 8822-B change of address, seeking an “affirmation letter” (i.e., an updated IRS determination letter), and periodically checking the above-listed IRS website. Additional IRS information is available here.
[1] An earlier version of this article stated “e-filing was available only to very large or very small nonprofits,” which has been corrected.
[2] An earlier version of this article did not include information concerning Form 990-PF or Form 990-T. For general information on IRS Form 990 reporting guidelines, see here.
[3] For background guidance on unrelated business income tax liability, see our blog on UBIT here.
[4] For further information on tax-exempt auto-revocation and reinstatement, see here and here.
