The Taxpayer First Act of 2019 (H.R. 3151), which was signed into law on July 1, 2019, included two provisions that are of interest to tax-exempt organizations:
The filing of tax-exempt returns, Form 990 series, are required to be electronically filed with the IRS by all organizations. Organizations excluded from this rule are churches and their affiliated organizations. This requirement is effective for taxable years beginning after July 1, 2019; thus, fiscal year filers whose tax year begins on or after July 2, 2019, will be subject first to the mandatory e-filing of their returns. For calendar year filers, the requirement to e-file is effective for tax years beginning on January 1, 2020, with electronic returns due on May 15, 2021. Fiscal year filers that started their recent tax period on July 1, 2019, will not have to apply the new e-filing rule until July 1, 2020 with electronic returns due on November 15, 2021. The mandatory e-filing of tax returns also is extended to the Form 990-T, Exempt Organization Business Income Tax Return.
The Act provides transitional relief to delay the mandatory e-filing to small organizations. A small organization is defined as an organization in which gross receipts for the taxable year are less than $200,000 and the aggregate gross assets are less than $500,000.
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.
The IRS is now required to notify those organizations that have failed to file their annual return for two consecutive years. This notification will remind organizations of their obligation to file a return and inform them that revocation of tax-exempt status will occur if the organization fails to file a return by their upcoming filing due date.
This notification was added due to the ongoing list of tax-exempt organizations that have lost their exemption status under the filing requirements of the Pension Protection Act of 2006 (“PPA”). Small organizations with larger volunteer bases tend to fall victim to loss of exemption because the volunteers are not always aware of the filing requirements of the PPA. Adding this notification is intended to alert organizations to file timely so that exemption stays intact. This will save the organization and the government added time and paperwork to reinstate tax-exempt status if it’s lost.
If your organization doesn’t file its return electronically, it must now do so for the next tax-filing period that starts after July 1, 2019. Adoption of this process is mandatory. Failure to e-file returns can result in loss of exemption.
If your organization does not e-file its Form 990 for three consecutive years, the IRS will issue an automatic revocation of tax exemption. To regain exemption, the organization must file a corporation or trust return in addition to the appropriate state return, which may subject the organization to income tax. The organization would also have to re-apply for exemption by filing the appropriate exemption application in full. Revenue Procedure 2014-11 outlines the steps that an organization must take to apply for retroactive reinstatement from the date of lost exemption.
To discuss these new tax act provisions and how the Taxpayer First Act might affect your organization, please reach out to our Not-for-Profit and Education services team by filling out the form below.
Author: Thomas Parisi, CPA, Manager