A Message from EDIN
The New Year came in with a roar — a few inches of snow in Washington, D.C., and much more in Washington state, where we cast our eyes this month to see what the Evergreen State is doing to prepare for e-filing. Seattle-based CPA Howard Donkin, chair of the Washington Society of CPAs’ Not-for-Profit Committee, believes that the IRS ‘soft audits’ will provide an incentive for nonprofits to e-file (see “Accountability Counts"). And the state’s charities program is just months away from achieving greater efficiency in processing reports thanks to an investment that will convert its data processing operations to a paperless system by early summer (see “State of the States”).

While February marks the official launch of the IRS’
e-filing for the Forms 990 and 990EZ, the success of this investment depends upon the availability of software options and improved coordination between the IRS and state charity regulators. EDIN will work closely with nonprofit leaders, accountants, legal advisors, state charity regulators, state attorneys general, members of Congress, and IRS officials to untangle the remaining barriers to e-filing and identify issues that will improve federal and state oversight and enforcement of the charitable sector.

Again, software is critical, as is the need to integrate federal and state reporting demands. So get involved, and let us hear from you.

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

E-file – What’s in It For Me?
by Midori Morgan-Gaide, Manager, IRS EO Electronic Initiatives Office

In November’s newsletter, we illustrated the differences in processing of electronic and paper returns. In reviewing this chart, it becomes clear that e-filing results in fewer IRS resources devoted to opening and sorting mailing, keypunching data, generating correspondence and filing returns. However, many of you are more interested in the benefits you receive by participating in e-file.

	To put it simply, the most effective, efficient and economical means for us to process tax returns is also the most effective, efficient and economical means for exempt organizations and their practitioners to file returns.

First and foremost, if we are not opening and sorting mailed returns, it means you aren’t sending us mail! E-filing saves you time and money because you do not have to print (unless you choose to keep a paper copy in your files) and mail the return, which also means you do not have to pay for a proof of mailing, e.g. a certified return receipt. You also save time (which is money!) because many validity and consistency checks included in e-file software help you file a more accurate return. For example, if you inadvertently transpose part of your Employer Identification Number (EIN), our system will electronically notify you of the error before we accept your return for processing. This eliminates the need for later correspondence.

In the future, e-filers will have benefits available to them that paper filers will not have. These include use of the IRS e-services website, single point filing with the states and compliance with disclosure rules.

	The significant error rate for paper returns is reduced to 1% for e-filed returns. For a list of Approved IRS e-file providers, click here

The e-services website allows an organization or practitioner to view their “account information” on-line. You can check your own filing status, request transcripts and check status of payments or refunds if applicable. Single point filing allows an organization to fulfill both IRS and state filing requirements with a single click. Finally, e-filing generates an electronic data file which you can use to respond to requests for copies of return more quickly and easily.

Bottom line — e-file is more efficient, effective and economical than paper filing for both the IRS and you!

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	Jacobson Jarvis

Software is key to e-filing the 990s, says Jacobson Jarvis partner Howard Donkin, CPA, who is chair of the Washington Society of CPAs Not-for-Profit Committee. Interested nonprofits can help keep a fire under software developers’ feet by contacting tax software companies about the need for 990 e-filing software.

Once the software is available, accurate reporting will be made easier, according to Char Davies, MIP software partner at Jacobson Jarvis. Davies has seen increased accuracy result from recent improvements in integrated accounting software and expects the same level of ease with the new e-filing product.

Early refunds, Donkin says, was the driving reason behind the increase in popularity of Form 1040 efiling. For Jacobson Jarvis’ clients, early refunds are not a motivating factor, but simplicity and reduced paperwork will be the incentive for his nonprofit clients.

Another incentive to e-file the 990s, says Donkin, is the prospect of $20 per day penalties for an incomplete return. The IRS has begun a "soft audit" program to crack down on incomplete returns. Through e-filing, built-in software controls can solve some of the problems that lead to incomplete returns.

Donkin, who also serves as the Northwest representative on the Exempt Organization Taxation Technical Resource Panel (EOTRP), a national working group of the American Institute of Certified Public Accountants (AICPA) that meets with IRS officials to review and comment on tax-related legislation and regulations, believes that over the next several years, the IRS will take greater advantage of the Internet to make it easier for exempt organizations to submit applications and reporting forms.

E-filing is “not going to make the information better, but will make it easier to disseminate and less expensive getting it into GuideStar,” says Donkin, adding that the ‘soft audits’ the IRS will begin conducting this year out of a new compliance office based in Ogden, UT, will have a greater impact on accuracy than e-filing.

“I see these as more of an educational effort than a compliance effort,” says Donkin. “I think there are a lot of organizations out there that aren’t filing the forms or aren’t doing it correctly. The soft audits will make nonprofits aware that improvements need to be made.”

Jacobson Jarvis clients range from organizations with a $1M budget with an executive director and a part-time assistant to an organization with a $50M budget. Clients include the Artist Trust, Seattle; Tacoma Art Museum; Seattle Center Foundation; Urban League of Metropolitan Seattle; Low-Income Housing Institute; and Boys & Girls Clubs of King County. Regardless of the size, Donkin continues to find that many nonprofit organizations don’t understand the rules, particularly regarding the reporting of fundraising expenses.

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	Washington Charities

“Efficiency is what we’re after – for our office and our customers too,” says Rebecca Sherrell, Washington Charities Program Manager and a member of the National Association of State Charity Officials Board of Directors. Approximately 7,000 organizations are registered in the state of Washington, although Sherrell suspects there are many more that should be registered.

	National Association of State Charity Officials

E-filing the state’s registration form will be optional, but will be available to charities when the project launches in early summer. Looking ahead, Corporations Division Director Mike Ricchio anticipates that a third-party intermediary will be needed to handle online payments from charities that file in more than one state, since states have their own set of fees. Also on the horizon is the need to coordinate e-filing at the federal level with state systems. “Ideally, a charity should be able to file with the IRS and the state at once,” says Ricchio. “But we’re going to need flexibility and options. States that have created back-end systems like ours need to be able to participate.”

Sherrell acknowledges that while e-filing is not new for the large sophisticated CPA and law firms that work with nonprofits, the smaller charities will face a challenge in keeping up with the technology. “E-filing is the way of the future, so we need to get there and do it the best way,” says Sherrell.

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	Visit and bookmark this page to check out the available IRS-approved software for 990 e-filing!

NCCS also has a desktop version of the software that can be downloaded at no cost and used to complete both the full Form 990 and the Form 900-EZ. Electronic filing with the IRS using the Desktop990™ will be in operation by March 31, 2004. This software has been available for two years (see http://efile.form990.org) and many nonprofits have used it to prepare their paper returns. The Desktop990™ also allows electronic filing of information required by participating states, so that a charity can also complete state filing requirements at the same time. The easy-to-use menu-driven format helps the charity prepare a complete and accurate return, with its internal error checks and references to instructions and tips.

Now with e-filing available at the federal level, a charity can simplify reporting even more, using the free software to e-file both with participating states and IRS.

Learn more about both the web-based Form 990-EZ software and Desktop990™ at http://efile.form990.org. It’s a great opportunity to e-file at no cost.

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