E-filing requirements for exempt organizations.

• Author: Papadopulos, Nancy E.

The IRS's electronic filing (e-filing) program started with individual returns. After it proved successful, the Service expanded the program to include quarterly and annual payroll reports, and partnership, corporation, fiduciary and exempt organization returns. This item addresses the availability, benefits and requirements of e-filing for exempt organizations.

Availability

Most charities and nonprofit organizations can e-file; in February 2004, the IRS made the following forms available for e-filing: Form 990, Return of Organization Exempt from Income Tax; Form 990-EZ, Short Return of Organization Exempt from Income Tax; Form 1120-POL, U.S. Income Tax Return of Political Organizations; and Form 8868, Application for Extension of Time to File an Exempt Organization Return. In January 2005, Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as a Private Foundation, was added to the e-filing program. E-filing is not available for amended returns, final returns or Form 990-T, Exempt Organization Business Income Tax Return.

With sophisticated technology the norm in the business world today, e-filing (which can be done up to, and including, midnight of a return's extended due date) provides a secure way for a taxpayer to satisfy its annual filing obligation, while reducing the return's data error rate significantly. Paper returns have an average error rate of 27%, while electronically filed returns average 1%-2%; see www.irs.gov/charities/article/0,,id= 160626,00.html. In addition, the IRS processes e-filed returns on receipt and, within 24-48 hours, sends acknowledgments to the electronic return originator (ERO), via the ERO's software provider.

Who can provide e-filing?: Only software providers who have received Service approval can provide e-filing. Many of these software vendors check for accuracy during the preparation process, ensuring that more returns, when transmitted to the IRS via the software provider, are free from error. Even with these software checks, the Service occasionally rejects returns that the software treats as qualified. It sends an electronic notice that informs the ERO of the reason for the rejection.

Error correction: Once the ERO corrects the error, the return can be resubmitted electronically. According to IRS Pub. 4206 (Rev. 2-2006), Information for Authorized IRS e-file Providers of Exempt Organization Filings, if a return is rejected, the taxpayer has 20 days to correct and retransmit...