Growing up in a small town I was a frequent visitor to the local public library. What’s not to like when you get to read unlimited (and often exotic) magazines and check out books, all with just a laminated card and promise to return? At the start of each calendar year, I remember the librarians stocking a new release – IRS tax forms. They were arcane publications that reminded me of a cruel test.
Fortunately, when I needed to submit my first personal tax return my dad introduced me to TurboTax, and I’ve been hooked on e-filing ever since. You’ll still find tax returns at your local library if you actually go these days, but according to the IRS, only 20 percent of individual returns are projected to be paper filed in 2016.
Exempt nonprofit organizations (NPOs) in the United States face vastly more arduous and mission-critical challenges in submitting a variety of Federal and employee-related forms. Consequently, e-filing levels for the Form 990 fall short of the individual tax return (1040) rate each year.
E-filing is required generally for nonprofits with annual gross receipts up to $50,000 and those with total assets over $10 million, which leaves a huge gap of hundreds of thousands of organizations in the middle. While I’m personally very much for transparency in the nonprofit sector, the Form 990 still amazes me, since it’s both a tax form, but also the way nonprofits are scrutinized. Nonprofits in the near future may not have a choice in how the file.
In June 2015, the Exempt Organizations Subcommittee of the IRS Advisory Committee on Tax Exempt and Government Entities (ACT) made several recommendations, including requiring all NPOs to file electronically. The benefits are clear for both the organization and the public.
- Built in accuracy checks. Roughly 25 percent of paper filed Form 990 returns have errors that could be caught with eFiling and its ability to pinpoint errors.
- Faster Acknowledgements. This comes within 24 hours of submission and lets your stakeholders breathe easy.
- The IRS could save close to $! million in budget with fully eFiled 990s alone.
- The data for the NPO sector could be opened up further for ease of research and transparency.
It’s not just about 990s and associated variants. As an employer, nonprofits must handle W2, 1099, and nowadays many 1095 variants that include key Affordable Care Act (ACA) data. With so much to keep up with, it seems clear that e-filing can not only help save trees, but also streamline the entire HR operation. Fortunately, true fund accounting™ solutions like Abila MIP Fund Accounting™ and MIP Advance™ help with a variety of e-filing processes via services like Aatrix.
Although the e-filing statistics show a positive trend in the nonprofit sector, it may unfortunately take a mandatory requirement for their 990s. It’s in everyone’s best interest, and should finally enable supporters to more easily research NPOs. In the meantime, I’m still searching for one statistic – what percentage of environmental cause-based nonprofits still paper file.