Taxpayer First Act Seeks to Modernize Filing of Exempt Organizations

On July 1st the President signed H.R. 3151, also known as The Taxpayer First Act (the “Act”), as a means to drag the Internal Revenue Service into the 21st Century through internal reforms aimed at more efficient tax filings. These much-needed modifications seem to correct some of the more archaic processes currently being used, but one of the smaller, albeit most interesting, provisions for tax-exempt entities is the mandatory electronic filing of Forms 990 and 990-T. 

The Act now requires all 990 returns to be e-filed for tax years beginning after July 1, 2019. However, the Internal Revenue Service has the option to postpone the effective date of the mandatory Form 990-T e-filing for up to two additional years.

Prior to the Taxpayer First Act, the Form 990 was required to be filed electronically only if it reported gross receipts of $10 million or more, and 250 returns were filed in a calendar year. However, any organization, no matter the size, could elect to file electronically. Electronic filing has been an overwhelmingly popular option; the process is immediate and efficient, and it completely removed the US Postal Service as a potential barrier towards tax compliance. That popularity has only increased as many states acquired the infrastructure necessary to accept electronic filings, as well.

Unfortunately, electronic filing still had its limitations. The Internal Revenue Service did not have the needed resources to accept the electronic filing of Form 990-T to report Unrelated Business Taxable Income. Often, taxpayers were filing Form 990 and state returns without ever leaving their desk but still had to trek to the nearest Post Office to submit their Form 990-T. Ironically, while the Form 990-T was still required to be mailed, the payments associated with these returns were required to be submitted online through the Electronic Federal Tax Payments System (EFTPS). With the passage of the Act, taxpayers have the potential to fully comply with their tax filings with just a few signatures and mouse clicks for tax years beginning after July 1, 2019.

Modernization will not be limited to just methods of filing for tax-exempt entities. The Act also provides new procedures for notifying organizations on the verge of losing their tax-exempt status. Previously, organizations were notified of a revocation after three consecutive years of noncompliance related to tax filings. Going forward, organizations that have not fully complied with filing requirements for two consecutive tax years will be notified prior to their status being automatically revoked on the third year. This notification will include details on what is needed to bring the noncompliant organization current and prevent an unanticipated revocation before the third year.

If you have questions about how the Taxpayer First Act will affect your organization, please do not hesitate to contact us.