Electronically filing the Form 990 will lead to greater accuracy of and quicker access to up-to-date information on nonprofit organizations and result in significantly less paperwork for nonprofit organizations filing annual returns and other required information to state and federal regulators. Internal consistency checks embedded in the software will ensure the information on a nonprofit's 990 is complete and correct. E-filing provides immediate confirmation that all information has been successfully submitted — an important advantage given the $100 per day penalty fee if an organization's return contains incorrect information!

EDINews will highlight the latest news and information on e-filing from the IRS, state charity officials, professional accountants, and software developers. We'll also publish perspectives on potential obstacles to e-filing and provide tools and strategies for overcoming those obstacles.

E-filing the 990 is a long-awaited opportunity that's coming soon. So get ready, get set and be ready to go in 2004. Join our national coalition and help strengthen the integrity and effectiveness of the nonprofit sector by helping to make e-filing the 990 in 2004 a success.

Patricia Read Vice President, Public Affairs Independent Sector		Ellen Dadisman Vice President for Government and Media Relations Council on Foundations

The Exempt Organizations (EO) Office of Electronic Initiatives, formally established in October 2003, manages, coordinates, and supports the development of electronic initiatives for tax-exempt organizations. The office works with EO subject matter experts and other IRS offices, tax-exempt organizations, software developers, practitioners, as well as research and oversight groups to ensure that each electronic initiative meets the requirements of all interested stakeholders.

EO's first electronic initiative was the political organizations filing site (http://www.irs.gov/polorgs). Initially launched in July 2000, the site was revamped in July of this year and allows many political organizations to file their IRS reports electronically.

The electronic filing of the Form 990 series of returns (990 e-file) is EO's second electronic initiative. This project began in August 2001 with the initiation of a feasibility study and market assessment which was completed in September 2002. The past 12 months have been devoted to working with software vendors to develop software and working with IRS Information Technology Services to develop a system to receive the returns. We are happy to announce that the system will be in the testing phase by early November.

In the coming months, we will be using this newsletter to provide updates on the progress of the 990 e-file project. We will also be addressing many frequently asked questions such as:

• Will e-filed returns be subject to different or more frequent audits than paper filed returns?
• Will IRS e-file satisfy state filing requirements?
• Will e-filed data, especially names and addresses of donors, be secure and protected?
• Will e-file fulfill public disclosure and inspection requirements?
• How do organizations register to e-file?

We know that there are many more questions to be answered. We are grateful to EDIN for providing us with the opportunity to "speak" directly with our stakeholders. We are committed to making 990 e-file a valuable tool for exempt organization stakeholders and look forward to working with many of you to ensure the project's success.

Sincerely,

Midori Morgan-Gaide
Manager, IRS EO Electronic Initiatives Office

top of letter | table of contents

	Earlier this year, Harvey's monthly column on tax issues for not-for-profit organizations, published in The Nonprofit Times, examined how to report fundraising costs on the Form 990 (PDF). Look for his NPTimes column in January 2004, when he will look at electronic filing of the 990.

A frequent speaker on tax aspects of not-for-profit organizations and incoming chair of AICPA Not-for-Profit Organizations, Berger was recently asked by the IRS to review the agency's detailed instructions to software developers to ensure that, from an accountant's point of view, they passed muster.

A champion for a complete and accurate 990, Berger recently presented "The Most Common Mistakes on Form 990" at the 2003 AICPA Not-for-Profit Industry Conference, where he shared a checklist of items to pay close attention to and alerted his colleagues that e-filing was just around the corner.

Though he is concerned about the availability of software, he is a strong proponent of e-filing the 990: "It is the right way to do things," says Berger, adding that e-filing will lead to more standardization and faster, more updated information on GuideStar.

Although all Form 990s filed by organizations exempt under Code section 501(c)(3) with the IRS are available to the public through GuideStar, many nonprofits are unaware of their widespread availability. "When I meet with prospective clients, I bring their 990 with me and they'll ask, 'where did you get that?' When I tell them it is available on the Web, they are often shocked and surprised. While they know that they have to provide copies if asked, they and their boards don't always appreciate the wide availability."

For Berger and his team of accountants who serve their nonprofit clients, e-filing's success will be tied to the availability of software. Ideally, says Berger, software will be available to file with the IRS as well as with the states. "It doesn't look as though all of the major processing firms will have software available for 2004 filings. While I am disappointed, this may give the IRS some time to iron out any bugs in the system. Hopefully, in 2005, e-filing will increase significantly."

top of article | table of contents

	E-filing made easy in Pennsylvania To e-file in Pennsylvania, download Desktop990™, free software available from the Bureau's or NCCS' website, to complete a 990 and Unified Registration Statement. Attach copies of your organization's annual audit and any other required documentation and, with a single click of the mouse, submit the documents electronically via the Internet.

Despite this groundbreaking effort, only 24 of the 7,700 plus charities that file 990s and registration materials each year with Pennsylvania have done so electronically, according to Karl Emerson, Director of the Pennsylvania Department of State's Bureau of Charitable Organizations. A vigorous advocate for e-filing who would like to see all charities soliciting in Pennsylvania file electronically, Emerson is even exploring the possibility of having Pennsylvania's law amended to reduce registration fees by 50 percent for charities that file electronically.

According to Emerson, there have been two major hindrances to e-filing in his state: First, commercial 990 preparation software used by most charities and their accountants has not been updated to accommodate e-filing and, second, there has not been an e-filing option available at the federal level or for any states other than Pennsylvania and Colorado.

Despite low participation to date, Emerson is quick to point out that the Pennsylvania/NCCS electronic filing project clearly demonstrated to the IRS, the 38 other states that register charities, and to the charitable community at-large that an electronic registration system could be successfully developed. "The fact that charities can now file their 990s electronically with Pennsylvania but still have to submit the originals to the IRS via regular mail provided a major incentive for the IRS to vigorously pursue electronic filing of 990s," says Emerson, who also serves on the IRS's Tax-Exempt Advisory Committee.

With the IRS on track to make e-filing of 990s available in early 2004, there's "at least a light at the end of the tunnel now," says Emerson, predicting that when commercial software becomes available for 990 e-filing at both the federal and state levels, "e-filing will take off" and eventually eliminate the need for his and other state offices to require paper copies of 990s.

"In the end, e-filing will allow both the IRS and the states to do what every donor and legitimate charity want their governments to do: aggressively pursue those who defraud innocent donors and siphon millions of dollars each year from legitimate charities rather than spend significant amounts of their limited resources processing largely duplicative paperwork."

top of article | table of contents

In early 2004, the Internal Revenue Service's Modernized e-File will have a new option to e-file nonprofit organizations' annual information returns and requests for extension (Forms 990, 990EZ, and 8868) through the Internet. Key to ensuring a smooth transition to electronic filing is the availability of software for nonprofits and their accountants to participate in e-filing.

One of the commercial software developers planning to release a 990 e-file product is ATX, a Maine-based producer of tax preparation and tax research solutions with more than 70,000 customers. "We have already done a considerable amount of work and will be ready with a 990 e-file product when the IRS begins its assurance testing in November," says Michael Knighton, ATX's director of strategic services, adding that the company's "user-friendly" 990 E-file software will "reduce the barriers" to electronic filing of Form 990 returns.

	"We will be ready with a 990 e-file product when the IRS begins its assurance testing in November." Michael Knighton Director of Strategic Services ATX, a professional tax software company

"The ease-of-use starts long before a charity transmits its Form 990," explains Knighton. The software includes integrated diagnostics that point directly to e-file errors and comes with such features as one-click transmission, which sends the files electronically to federal authorities. Easy-to-read reports from a common-sense query database show the status of all files sent electronically and provide alerts regarding possible problems. Acknowledgements are integrated directly into the 990 return and provides reports for easy corrections of any 990 errors.

"The benefits of e-filing are tremendous," says Knighton, pointing out that "convenience is the biggest advantage" of 990 E-file software. "Accountants can prepare their client's tax-exempt returns and file them electronically without having to print, package and mail the return. And, when a tax preparer uses 990 E-file software, he or she knows that the return won't get lost in the mail. Finally, the IRS will send the accountant/tax preparer an acknowledgement of receipt within 48 hours of receiving the return for added peace of mind."

Statistically, says Knighton, less than one percent of returns filed electronically contain errors as compared to 20 percent for paper returns. Using the 990 e-file software will help to ensure that the Form 990 and accompanying schedules prepared by the accountant will be free of calculation errors and help reduce the number of rejections normally caused by paper return filing. "Those equipped with the right technical knowledge and the appropriate software will be miles ahead of those without these essentials," says Knighton.

top of article | table of contents