Whither Form 990 E-filing - or Is It Wither?

by Linda M. Lampkin, Senior Nonprofit Compensation Specialist 19. March 2012 09:03
If you have ever wondered why nonprofit issues and compliance do not appear to be top priorities with the IRS, just review the statistics presented in an article in the most recent issue of theStatistics of Income (SOI) Bulletin - Winter 2012, published quarterly by the SOI, the research division of the IRS.
 
Brett Collins, author of Projections of Federal Tax Return Filings: Calendar Years 2011–2018, estimates that about 237 million tax returns are expected to be filed in 2011 – of these, about 741,000 will be Forms 990, 990-EZ, and 990-PF. Thus, not only is there very little money to be gained in working on nonprofit compliance, but the 990 series represents only about 0.3% of the total returns filed. Another 480,000 organizations will file the electronic post card, the 990-N – these are the very smallest entities with less than $50,000 in annual revenues.
Now about 77% of all individual income tax returns are e-filed, and that is projected to rise to 84% in 2018. When e-filing reaches these levels, the processing of the data is less of a burden for the IRS.
 
While the IRS tries to manage its ever increasing work of processing data by encouraging (and requiring where possible) e-filing of returns, the expectations are discouraging for the nonprofit sector. The number of Forms 990, 990-EZ, and 990-PF filed in 2018 is projected to increase by about 14% from 2011. The percentage of e-filing is expected to rise also, but only to 38%, not nearly the level for individual tax returns (84% in 2018), or corporation returns (55% in 2018). The table below breaks out the estimates by type of return.
 
Type of Return
Estimated 2011
Projected 2018
Total Forms 990, EZ, PF
741,200
842,600
990, EZ, PF e-filed
203,100
321,500
% of total e-filed
27%
38%
Total Form 990
401,700
448,100
990, e-filed
113,900
175,500
% of total e-filed
28%
39%
Total Form 990-EZ
222,500
264,500
990-EZ, e-filed
73,600
114,200
% of total e-filed
33%
43%
Total Form 990-PF
117,000
130,000
990-PF, e-filed
15,600
31,800
% of total e-filed
13%
24%

 

The Forms 990 now serve as the major public source of information about an organization’s finances, governance, operations, and programs for federal regulators, the public, and many state charity officials. Supported by nonprofit sector groups such as Independent Sector (seehttps://www.independentsector.org/efiling_form_990?s), e-filing actually promotes accurate Forms 990 as the preparation software detects incomplete and potentially inaccurate information before returns are filed. It also allows the IRS to provide immediate feedback to organizations about incomplete returns and those with obvious inaccuracies.
 
The IRS currently requires larger organizations – with assets of more than $10 million – to e-file if they filed more than 250 returns (including W-2s and other returns). Private foundations that file at least 250 returns are also required to e-file Form 990-PF, regardless of total assets. And, of course, the five-question Form 990-N postcard is available only electronically, and must be e-filed by the very smallest organizations in the sector. The vast majority of the nonprofits are not required to e-file – software is used to prepare their returns, then they are printed and mailed to the IRS, where they are scanned and turned into images for distribution, a time consuming and expensive process that does not result in data usable for research.
 
The impediment to requiring e-filing for all is a provision in federal legislation from 30 years ago designed to reduce filing burdens for smaller entities, not just nonprofits. However, with the dramatic change in how computers are used from the 1980s to the present, e-filing for all organizations is not a burden and is generally supported in the nonprofit sector.
 
Making this necessary legislative change to require organizations to e-file should be a priority for all those interested in the nonprofit sector. Because of the limited resources of the division of the IRS in charge of the nonprofit filings, the forms were deemed to be public, thus allowing all stakeholders – the media, watchdog groups, funders, etc. – to be part of the enforcement process. But, when there is a long delay in providing these public documents and they are in a format that is difficult to use, the purpose of making them public is not met. Making e-filing a requirement would allow the IRS to use its resources more effectively and encourage the creation of a system to disseminate the data in a usable format in a timely fashion.