We have a great deal of work in the year ahead. To achieve our goal, 2004 will bring together key players around the country to improve the integration of federal and state e-filing initiatives, encourage the development of software options, and explore additional strategies and options to make information about the sector more widely accessible.

You’ll read in this issue of EDINews that e-filing software for the 990 will be limited in 2004 for this first e-filing season. Those who can e-file are likely to do so. And while this is likely to be a modest group, these “early adopters” can provide valuable information to the rest of the sector on their experiences, which EDIN will collect and share with the IRS and software developers to improve the system for 2005. In addition, nonprofit organizations should communicate with their accountants in 2004 about which software they use in their practice, and encourage them to contact their software developer to inquire about a 990 e-filing product. Finally, we urge nonprofit leaders, professional accountants, state charity officials and others to become part of the national dialogue on electronic filing of the Form 990s and the consolidation of state and federal reporting demands on nonprofits. Let us know what you're thinking, and what you're hearing from your members, clients, constituents, and colleagues.

Patricia Read Vice President, Public Affairs Independent Sector Co-Chair, EDIN		Ellen Dadisman Vice President, Government Relations Council on Foundations Co-Chair, EDIN

Earlier this month, I was on a panel with EDIN Co-Chair Pat Read to address the Greater Washington Society of CPAs at their 15th annual Not-for-Profit Symposium. Although I have spoken several times to this group, I can always count on someone asking, “what are the benefits of electronically filing the 990s?”

I usually answer this question with the same response that many nonprofits, state charity officials and accountants provided the IRS when we first considered electronic filing of the Form 990s several years ago: accuracy and timeliness of data on tax-exempt organizations, convenience and greater efficiency. The list is fairly lengthy, and EDIN has captured these on its website.

The benefits of filing the 990 electronically will become apparent to the nonprofit sector over time as software becomes available and when nonprofits will be able to simultaneous submit their federal and state reports electronically.

Aside from inquiring about the benefits of e-filing, questions revolved around federal budget impacts on electronic filing plans and the availability of software.

2005 Budget
The IRS has been working with Treasury and the OMB on the President’s 2005 Budget. While 2004 will be a difficult year, final decisions on the 2005 will not impact Modernized e-File’s plans for releasing the 990s and 1120s in 2004, according to my colleague Chuck Piekarski, Senior Manager, Development Services Division, Electronic Tax Administration, who addressed the ETA Advisory Committee public meeting earlier this month. Chuck told ETAAC members that the 2005 budget could affect the implementation schedule for a state retrieval system. The IRS sub-group recently completed the requirements for impact and cost assessment , and a decision is expected by February 2004.

Availability of Software
As the month of December comes to a close, IRS staff and outside contractors are working double-shifts and weekends to roll out Modernized e-File (MeF) for the 990/990-EZ, 8868, and 1120-POL in early February 2004. MeF “opened its doors” to tax preparation software companies on November 4, to test their commercial software. The IRS will publish a list of software developers that pass assurance testing. Acceptance does not imply endorsement by the IRS for the quality of services provided. Nonprofits should contact their software developer to determine if they plan to develop electronic filing software.

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	“Electronic filing is part of the maturing of our field. As the first state to put charities registration information on the Internet, it makes sense for Minnesota to be an early adopter of e-Filing.” 8,000 charities and charitable trusts are registered with the Charities Division of the Minnesota Attorney General's Office. Data is taken directly from each organization's financial statement and information return and is available online in a searchable database. “One of the things nonprofits need is current economic performance information. We need more timely, more accurate returns, and greater access to the information. Almost every other industry has this. The Minnesota Council of Nonprofits is encouraging nonprofits to build electronic filing into their plans to help meet their accountability responsibilities and serve as a model for e-filing to be adopted on a broader basis.” The Minnesota Council of Nonprofits began working on nonprofit accountability at its 1993 Annual Conference, and has continued to be a leader and collaborator on discussions of nonprofit standards, sound management, and public accountability. Among the resources MCN offers is a multimedia presentation on the IRS Form 990, which provides a template for presenting 10 key questions to discuss with a nonprofit’s board members. The presentation is available on the state association’s website. Jon Pratt Executive Director Minnesota Council of Nonprofits

Heffernan, who has a significant nonprofit practice that includes numerous social welfare groups, performance and other artistic groups, and the Minnesota Council of Nonprofits, does not share a concern expressed by many accountants: that e-filing the Form 990 will require additional time to key in information that is now printed and stapled to the hard copy return.

“The time it takes my staff to make four or five copies of any client manually prepared attachments and then to assemble the tax return with “Sign-It” tabs, envelopes, etcetera, is just as time-consuming,” says Heffernan, who says she will not charge her clients extra for e-filing because whatever staff time is invested in e-filing would otherwise be spent handling paper returns. If the information return data is already being entered in the software program, there should be very little additional time required. In addition, she says, with the exception of the “Statement of Program Accomplishments” and a few other free form areas on the information return, much of the content on the 990 is standard year to year.

Heffernan was so excited to learn that the IRS will be making the 990 available for e-filing next year that she called CCH to see whether the company planned to offer a 990 e-filing product in time to file her clients’ 2003 returns. When she learned that CCH would not be releasing a 990 e-filing product in 2004, she told them she was “not happy” and spoke with several representatives to affirm the need for such a product. CCH plans to release an e-filing product for the 990s in 2005.

“If CCH and other software developers use next year to ensure that their 990 e-filing product in 2005 will be an easy, seamless process for me, then it’s worth waiting for,” says Heffernan, who is already updating her engagement letters to request authorization from her clients to e-file their annual reports.

“My clients trust me and appreciate my use of technology to be more efficient. Recently I completed a client’s 990 and immediately emailed a PDF file for distribution to their board members, for their review, prior to the Board Meeting. Without this technology, my client would have had to assign a staff person to make copies and mail or fax them to each member. E-filing is one more step towards making my life easier!”

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	“New Hampshire nonprofits have been receptive to the idea of e-filing. But we know for this project to be successful that New Hampshire needs to identify and assess the IT capabilities of our nonprofits. Our recently released report on the state of the nonprofit sector in NH, tells us 44% of the 1,682 NH nonprofit organizations who file a 990 with the IRS are reporting annual gross expenditures under $100,000. This means these organizations have limited resources, both human and financial, and will require assistance to make the transition to e-filing. The IT capabilities of smaller organizations, as well as any training needs, must be a consideration in the planning. We are currently surveying IT capabilities within the sector and are committed to providing resources such as access to hardware, tech support, trainings and programs in order to reach the goals set out in the e-filing project.” ” Linda Quinn Executive Director New Hampshire Center for Nonprofits

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The majority of software developers are holding off on an e-filing product for the 990s, citing a variety of reasons, including development issues with other systems, unanticipated state mandates, the limited size of the Form 990 market, and the lack of advantages in being first out of the gate (see “What’s Developing” November issue of EDINews).

Three software developers tell EDIN they are planning to have a 990 e-filing product for 2005: TaxWorks 990 System, ProSystemfx and TaxWise. Lacerte’s product manager Toby Joplin revealed that the company’s most recent customer feedback indicated only lukewarm interest from accounting practitioners in e-filing 990 returns, hence the company will not be supporting a 990 e-filing product for 2003 returns. Joplin noted, however, that as the IRS continues to market and refine modernized e-file, Intuit customers may become increasingly more interested in e-filing form 990, which could justify the company adding 990 e-file for 2004 returns.

The National Association of Computerized Tax Processors (NACTP) will hold their spring meeting in Las Vegas, NV, in March 2004. Member companies that provide software for the 990 include Universal Tax Systems, RIA, Lacerte Software Corporation, STF Services, CCH, and Creative Solutions.

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