Form 990 recommendations comprise a small piece of the ACT’s annual IRS report, which also covers the ways the IRS can simplify and streamline reporting for 403(b) employee benefit plans, federal, state and local governments, Indian tribal governments and tax-exempt bonds. Organizations should note these recommendations about the Form 990 and consider how they would affect their operations. The IRS may end up adopting them. Previous suggestions from the ACT led to the redesign of the Form 990 for the 2008 plan filing year.
Electronic Filing of the Form 990Currently, organizations with more than $10 million in assets and that file at least 250 returns per year (e.g., information returns, income tax returns, etc.) must file the Form 990 electronically. Private foundations also must file electronically if they file at least 250 returns. The reasoning behind the requirement on larger organizations is that filing electronically would be too costly for smaller organizations. Any size entity can elect to file electronically, but despite the open option, e-filing rates among small to mid-sized not-for-profits are low. About 37% of organizations subject to the Form 990-EZ electronically filed in 2014, and about 48% of organizations electronically filed the Form 990-N.
The ACT recommends that the IRS Exempt Organization Division ask Congress to make electronic filing mandatory for all sizes and types of not-for-profit organizations. In general, the IRS encourages electronic filing as a more convenient approach to efficient approach to filing requirements. President Obama’s Fiscal Year 2016 Revenue Proposals and the U.S. Government Accountability Office (GAO) seconded the opinion. The IRS collects information from Form 990 filings and for paper filings, and if a not-for-profit submits a paper Form 990, the IRS must then scan the paper submissions into electronic filings for its data collections. Electronic filings would make access and accumulation of the records simpler. Accessibility to online filing systems is not as large of a barrier as it was when the regulations around e-filing were set.
The ACT recognizes that Congressional action may take some time, and proposed that in the interim, the IRS incentivize the use of electronic filing among those smaller organizations that do not currently meet the e-filing requirement.
Reexamine Form 990 Schedules
The ACT is recommending that the IRS create a task force to reexamine the schedules of the Form 990 and determine whether any of the schedules should be improved or removed. The 2014 Form 990 schedule contained 16 schedules each with its own set of instructions and requirements. Most organizations complete five or six schedules.
When committee members reached out to organizations about their filing, they found that common trouble spots included reporting of functional expenses, compensation, government grants, volunteer labor and in-kind donations and reporting on related organizations. The ACT asked that the IRS to start with updating requirements in those areas, and work with the Financial Accounting Standards Board (FASB), which released a proposed accounting standards update about nonprofit financial statement presentation.
Additional Information from Form 990-N Filers
An entity’s size often dictates which form(s) in the 990 series it files. For example, the Form 990 is filed by organizations with at least $200,000 in gross receipts or total assets that exceed $500,000. Organizations with less than $200,000 in gross receipts or less than $500,000 file the Form 990-EZ, and the organizations with revenues less than or equal to $50,000 file the 990-N.
For many of the organizations that file the Form 990-N, the filing is the only opportunity for IRS oversight. Form 990-N filers also often qualify for the Form 1023-EZ, which scopes out entities from having their activities specifically reviewed by the IRS. The IRS reviews entities that want to use the Form 1023-EZ method to determine if they qualify, but the oversight drops off after the applicant is approved.
The ACT recommends the IRS look into expanding the reporting requirements for the Form 990-N to include information about activities and expenses. An example would be providing the total income and expenses for their organization to the IRS. The ACT asked organizations that file the Form 990-N if this would be burdensome, and the majority said it would not.
To keep contact going between the IRS and the smaller not-for-profit organizations, the ACT also recommended the IRS perform more educational outreach with those organizations.
For More Information
For more information about how these recommendations would affect your not-for-profit organization, please contact us here.
Brenda Booth is a Director in the Not-For-Profit & Education Tax Practice. She can be reached at 617.761.0729 or BBooth@cbiztofias.com.