Thursday, August 27, 2020

The future of filing for nonprofits

In a tumultuous summer that saw the temporary closing down of the Internal Revenue Service, it is worthwhile to revisit important tax legislation from the prior summer in a time before the COVID epidemic turned the world upside down: namely the Taxpayer First Act. With the passage of this law, entities wishing to file tax exemption forms 990 and 8872 will soon be required to file those forms electronically, rather than on paper as has been historically accepted. While a number of measures have been put into place which will delay the enforceability of this act for nonprofits with asset values beneath certain totals, this law marks a noteworthy shift in tax-exempt organizations’ visibility to the public at large.

The reason for this lies in the fact that the act will require the IRS to make all electronically filed returns from tax-exempt organizations available to the public in the near (yet unspecified) future. With all returns now being electronic, persons wishing to investigate nonprofits will no longer have to endure the unwieldy process of submitting written requests to the IRS, which will in turn significantly speed up how rapidly the desired information can be accessed. Given the recent scandal of the New York Attorney General seeking to dissolve the National Rifle Association over allegations of extreme levels of fraud and misuse of organizational funds, it may well be a good idea to implement a law that will serve to make the financial status of nonprofit organizations increasingly transparent to their members as well as taxpayers at large.

For information regarding the act, see the following link on the IRS’ website: https://www.irs.gov/taxpayer-first-act#:~:text=Generally%2C%20the%20legislation%20aims%20to,and%20enhance%20its%20cyber%20security.

By David A. Brennen, Professor of Law at the University of Kentucky

https://lawprofessors.typepad.com/nonprofit/2020/08/the-future-of-filing-for-nonprofits.html

Federal – Legislative | Permalink

Comments

Mandatory electronic filing has another benefit for the public, and especially researchers and media researching nonprofits. Electronic filing facilitates digital storing and disseminating of 990 data through Amazon Web Services (AWS) in formats accessible and useful to people seeking to analyze both individual returns and cohorts of returns based on a variety of criteria.

In addition to examples of waste, fraud, and abuse, such data analysis will help better identify uses of funds over time and contrast both financial and non-financial nonprofit behaviors over time and across industry subsectors.

Of course, it will also make it easier for the self-appointed charity watchdogs to identify the cost to raise a dollar and which charities are most "efficient" in terms of ratio of fundraising expense to program and/or overhead expense.

Posted by: Michael L. Wyland | Aug 28, 2020 5:46:32 AM

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