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Mandatory E-Filing of Nonprofit Tax Returns: What’s New?

In a follow up to our previous article published following the enactment of 2019’s Taxpayer First Act, The Taxpayer First Act of 2019 (H.R. 3151), signed into law on July 1, 2019, required organizations exempt from taxation under IRC Section 501(a), including charities, social welfare organizations, labor unions and trade associations to annually file Form 990 Series (990, 990-EZ, 990-PF, & 990-T) returns electronically.

The Form 990 series forms, if required, must now be electronically filed with the IRS by all organizations, subject to transition dates. The law did not change the rule under which churches and affiliated organizations are not required to file.  For calendar year 990 filers, the requirement to e-file is effective for tax years beginning on January 1, 2020. Fiscal year Form 990 filers’ requirement to e-file was effective for tax years beginning on or after July 2, 2019; therefore, organizations with a tax year ending on or after June 30, 2021, are subject to mandatory e-filing with an initial due date of November 15, 2021.

The Act provides transitional relief to delay the mandatory e-filing for “small” organizations qualifying to file Form 990-EZ. A small organization is defined as an organization for which the gross receipts for the taxable year are less than $200,000 and the aggregate gross assets are less than $500,000. This transitional relief afforded to small exempt organizations provides for these organizations, with a tax year ending before July 31, 2021, to either paper file or file electronically. For organizations with a June 30th year end the mandate to file electronically will be applicable to years ending those ending on or after June 30, 2022, whose due date is November 15, 2022 and thereafter before extension.

The mandatory e-filing of tax returns was extended to the Form 990-T, Exempt Organization Business Income Tax Return and Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. Form 990-T mandatory electronic filing became effective for returns ending December 31, 2020 and later with a due date on or after April 15, 2021. Mandatory Form 4720 electronic filing became effective for tax years ending December 31, 2020 and thereafter with an initial or extended due date on or after July 15, 2021. Each taxpayer, including disqualified persons and foundation managers required to file Form 4720 must file the form separately from the private foundation’s own filing and these individuals must file a paper return with the Ogden, UT address provided in the instructions.

Additionally, all e-filed returns will be made available by the Secretary of the Treasury to the public as soon as practicable in a machine-readable format. This requirement gives outside interest groups the ability to easily sort through the data of the exempt organization. This information will be in addition to information provided to GuideStar and ProPublica.

Why Does This Matter to You?

If your organization doesn’t file its return electronically, as required under the mandate and instead files a paper return, you can expect the IRS to send back the tax return with a letter stating that the return must be filed electronically.  To be properly and timely filed, a return must be e-filed on or before the applicable due date.

Authors: Richard Ruvelson, Principal, JD, Tom Parisi, Manager, CPA | tparisi@withum.com

To discuss the electronic filing mandate and how we can be of assistance  your organization, locals and other affiliates as they comply with this mandate, please reach out to Rich Ruvelson at RRuvelson@withum.com and Tom Parisi at TParisi@withum.com.

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