FAQs for Exempt Organization Filers

	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

• What is Modernized e-File (MeF)? How is it different from other IRS e-file systems?
• Which Exempt Organization returns
  can be e-filed?
• So how do I submit all those attachments, explanations, etc. required by the Form 990 instructions? Can I attach spreadsheets or similar documents to my e-filed Form 990?
• Is there enough room on the electronically filed return for my organization to describe its activities and provide other required information?
• What’s in it for me?
• So how, exactly, do I e-file my Form 990, 990EZ, 1120POL or 8868?
• Who can help me if I have a problem with my electronically filed Form 990?

What is Modernized e-File (MeF)? How is it different from other IRS e-file systems?
MeF is a modernized web-based system that allows electronic filing of returns through the Internet using the widely accepted XML format, a standardized way of identifying, storing and transmitting data. Older IRS e-file systems use a telephone connection to transmit e-filed returns using an IRS proprietary data transmission format. Both MeF and the older e-file systems require registered Electronic Return Originators (ERO’s, e.g. tax practitioners) to use return preparation software packages that have been certified by the IRS. The modernized electronic system provides immediate feedback in understandable terms regarding acceptance of the return or rejects situations (such as when the Employee Identification Number on the e-filed return doesn’t match IRS records). The older systems use error code numbers.
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Which Exempt Organization returns can be e-filed?
Electronic filing is currently available for Forms 990 (including Schedules A and B), 990-EZ, 1120-POL, and the extension Form 8868. The Form 990PF will be made available next filing season.
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So how do I submit all those attachments, explanations, etc. required by the Form 990 instructions? Can I attach spreadsheets or similar documents to my e-filed Form 990?
You will no longer need to attach explanations, spreadsheets or other documents to your electronically filed Form 990. In all situations where you are asked to provide an explanation or description, the software will prompt you for the necessary information to allow for the automatic inclusion of the required information. We refer to this as a “structured” attachment. In some cases the software will create the attachment, and in other situations you will be able to enter the necessary information in the structured attachments ranging in size from 20 to 9000 characters, depending on the specific question from the Form 990. This should make it easier to provide all of the required information. The IRS will accept a scanned Form 8453 signature document, which must be in PDF format. This option to sign electronic returns is available to filers who elect not to use a PIN to sign their return.
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Is there enough room on the electronically filed return for my organization to describe its activities and provide other required information?
In all cases, the electronic Form 990 provides more space than the paper return for required explanations and descriptions. Plus the electronic Form 990 includes up to three General Explanation “Attachments”. Use of these is optional, but each provides approximately three pages where filers can include text to provide any additional explanations or descriptions as desired.
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What’s in it for me?

• Convenience – no more photocopying, finding a big enough envelope, going to the Post Office for certified mail
• Certainty – MeF users receive prompt acknowledgment when returns are accepted
• Correctness – use of approved software, which conforms to MeF specifications, dramatically reduces the number of errors on accepted returns. Submission of a more accurate return will reduce the follow up correspondence and interaction with the IRS.

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So how, exactly, do I e-file my Form 990, 990EZ, 1120POL or 8868?
Visit www.irs.gov and click on the e-file logo in the lower right hand corner. Click on e-file for Charities and Nonprofits for the most current information. This site will give you or your practitioner an updated list of return preparation packages that offer electronic submission of Forms 990, 990EZ, the extension Form 8868 and Form 1120POL.
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Who can help me if I have a problem with my electronically
filed Form 990?
If you are a nonprofit organization using a practitioner to file your return, work with your practitioner to resolve problems or questions about the information on the return. There is an E-Help Desk in the Ogden Service Center (1-800-255-0654) that will work with registered practitioners and transmitters to help resolve electronic filing problems. You or your practitioner may also work with the technical support function of the software developer who produced the software being used to prepare and transmit your return.
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Multi-state Filers Have Most to Benefit from E-Filing if IRS, States Consolidate Filing Dates & Streamline Reporting in One Electronic Submission
At BDO Seidman LLP’s Bethesda, MD office, the flurry of activity leading up to
May 15 has temporarily quieted down. “We had the normal attack of last-minute returns for calendar year 990s and met our bigger challenge — filing the returns for our June year end tax-exempt clients whose final six-month extensions came due,” says Mike Sorrells, CPA, who spoke with EDINews about the incentives for electronic filing and the need for CPAs and their clients to pay more attention to the 990.

	BDO’s National Nonprofit Tax Consulting Group

Sorrells, a partner and leader of BDO’s National Nonprofit Tax Consulting Group and a member of EDIN’s ad hoc working group on nonprofit electronic reporting, sees that 501(c)(3)s that file in multiple states have the most to benefit from e-filing. “There’s a ton of paperwork going in a lot of different directions at a lot of different times and often with a lot of different information. If we file a client’s return in all 40 states that require reporting, it costs our client significantly more than the 990 we do for them.

“In addition, there are always a lot of extensions requested — the audit’s not done and other various reasons. If you request an extension to file your 990 with the IRS, you then have to contact the state charitable offices to request an extension to file their required annual reports, since many states accept the 990 or require it as an attachment to their form. That’s more practitioner time and more client staff time, and there’s a cost to that as well. If the IRS and the states could adopt the same filing dates and streamline reporting with one electronic submission, our nonprofit clients would save a significant amount of money.”

From the regulators’ point of view, making charitable reporting easier will result in a better level of compliance. Says Sorrells: “I suspect that there are organizations that don’t file in all the states they should because it’s an administrative nightmare.”

E-filing by itself — without federal-state consolidation and streamlining — will not impact BDO’s work processes, says Sorrells. “We’re already putting numbers on a computer. The real work is getting the information, making sure it’s accurate and getting it into the required format.” He does feel that federal-state consolidation would provide a strong incentive for 501(c)(3)s (who solicit multi-state) to avail themselves of electronic filing. “However, the rest of the 990 filing world, such as 501(c)(4), (5) and (6) organizations, will probably need more of a carrot since they do not generally have to file with the state charity authorities.”

For more information, see BDO’s Nonprofit Alert and Sorrell’s quarterly column in “Exempt,” a new magazine from the publisher of The NonProfit Times.

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	Charitable Trusts and Organizations Section in the Pennsylvania Office of the Attorney General

	NASCO

For the first time, the meeting was expanded to include state nonprofit association leaders to allow more extensive discussions of the new e-filing option for Form 990 offered by the IRS.

The NCCS E-filing Pilot Project to develop electronic charity registration for states co-sponsored the National Association of Attorneys General / National Association of State Charity Officials (NAAG/NASCO) and GuideStar, has successfully launched state charity registration systems in Colorado and Pennsylvania that are compatible with the IRS e-filing system. Although the pilot project is over, other states can still participate at a modest cost for the additional programming required. The IRS plans to launch a single point retrieval system in 2006 that would allow charities to file both federal and state reports in a single submission.

“The best incentive for Form 990 e-filing is making the system easy for charities to complete all their filing requirements with one mouse click and we are committed to making all the NCCS-developed programs meet that goal. We encourage all Form 990 software developers to do the same,” said Lampkin.

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Software developers told the IRS they would need 14 months’ lead-time to review the IRS’s Schemas for future forms (1041, 1065 and the 1040 for Modernized
e-File). It would be helpful, they added, if the IRS were to standardize, develop, and issue Schemas for all the forms at the same time. IRS funding patterns have prevented the IRS from issuing all schemas and business rules at once.

Software developers and IRS staff confirmed that changes in state e-filing mandates would continue to affect the rollout of other forms. In 2006, the IRS plans to launch a new Fed-State system for the 1120s (corporate income tax) and 990s, similar to its existing State Retrieval System for the 1040s, but built on the IRS’s Modernized e-File platform, which would allow taxpayers and their practitioners to electronically file state and federal reports simultaneously with a single “click.” As with the launch this February, commercial software will be needed.

The IRS’s Fed-State model for the 1120s involves representatives of 20 states who are in the process of identifying and defining all the common data elements and creating a standardized taxonomy. “It’s a lot of work up-front with a huge pay-off,” remarked South Carolina Department of Revenue’s Terry Garber, Chair of the Tax Information Group for EC Requirements Standardization (TIGERS). Jointly sponsored by the Federation of Tax Administrators and the ANSI X12 national standards organization, TIGERS works with the IRS to develop compatible XML standards for state and fed/state e-filing for a variety of tax types.

The states are building the schemas based on categories of required information — data elements that relate to federal income, additions to federal income, subtractions to federal income, assets, and liabilities, for example. While there will be only one data element it may be computed differently from state to state. “It will not be possible to harmonize every aspect of reporting for all states,” said Garber, noting that some states send out an acknowledgement if the report is simply legible while others examine the return against the business rules before acknowledging a successful submission.

One of the challenges for software developers will be how to package all the federal and state reports in one bundle for transmission. Bundling the files means that if the federal return is rejected, the states returns are rejected, so each return will have to go through separately, and the software will have to provide a separate acknowledgement for each return.

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