Exempt Organization Electronic Filing Requirements Expanded

The 2020 tax season expands  electronic filing requirements for exempt organizations. The Taxpayer First Act requires tax exempt organizations to electronically file information returns and related forms. The new law affects tax exempt organizations in tax years beginning after July 1, 2019. Taxpayers may receive transitional relief for certain forms as discussed below in form-by-form requirements.

Under prior law, an exempt organization had to file electronically if it:

  1. had total assets of $10 million or more at the end of the year; and
  2. filed at least 250 returns of any type with the IRS during the calendar year ending with or within the organization’s tax year.

Exemption applications go electronic

In addition, as of Jan. 31, 2020, taxpayers must submit Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, electronically. However, the IRS will continue to accept paper versions of Form 1023 during a 90-day grace period.

Compliance Tip: The user fee for Form 1023 remains $600.

If you filed on paper expect a letter

Taxpayers who previously filed paper information returns and related forms will receive a letter from the IRS informing them of the change.  Forms affected by the new electronic filing requirement are:

  • Form 990, Return of Organization Exempt from Income Tax;
  • Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation;
  • Form 8872, Political Organization Report of Contributions and Expenditures; and
  • Form 1065, U.S. Return of Partnership Income (if filed by a Code Sec. 501(d) apostolic organization).

Form-by-form requirements

Form 8872. Forms 8872 reporting information for periods starting on or after Jan. 2020, will be due electronically by Code Sec. 527 political organizations. These include political parties,  political action committees, and campaign committees of candidates for federal, state, or local office.

Political organizations can file electronically at IRS.gov/polorgs. To file electronically, the organization must have the username and password it received from the IRS after electronically filing its initial notice (Form 8871, Political Organization Notice of Section 527 Status).  To replace a username or password, the organization should contact the IRS at the following address: IRS, Attn: Request for 8872 Password, Mail Stop 6273, Ogden UT 84201; Fax (855) 214-7520.

Forms 990 and 990-PF.  Forms 990 and 990-PF with tax years ending July 31, 2020 and later generally must be filed electronically. Form 990 and 990-PF filings for tax years ending on or before June 30, 2020, may still be on paper. Also, the IRS will continue to accept paper filings for short tax years or certain other circumstances as its systems are yet unable to receive these forms electronically. These circumstances are detailed in the 990 or 990-PF Instructions.

Form 990-EZ. The IRS will accept either paper or electronic filing of Form 990-EZ, Short Form Return of Organization Exempt from Income Tax, for tax years ending on and before July 31, 2020. For tax years ending Aug. 31, 2020 and later, Forms 990-EZ must be filed electronically. Generally, Form 990-EZ is for organizations with annual gross receipts less than $200,000 and total assets at tax year-end less than $500,000.

Paper Forms 990-T and 4720.  In 2020, the IRS will continue to accept paper forms that are pending conversion into electronic format. These include 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. The IRS plans to have these returns ready for e-filing in 2021 (reporting on tax year 2020).

By Robert Recchia, J.D., M.B.A., C.P.A.

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