IRS Explores Feasibility of E-Filing for Exempts

Determined to involve its stakeholders in the planning and development stages of its new systems, the Internal Revenue Service (IRS) has announced that it is seeking comments by April 18, 2002 from exempt organizations, state regulators, research and oversight organizations, practitioners, software vendors, and others on the proposed development of an electronic filing system for tax-exempt organizations.

Pros and cons

Although e-filing for tax returns of exempt organizations has lagged behind other types of returns, it seems to make economic sense for the government. For example, studies show as many as 80 percent of Forms 990 and 990-EZ are prepared using software, yet the IRS manually inputs a large amount of return data for their own internal use and for use by others.

At the same time, tax returns for exempt organizations also present some unique challenges: (1) they are filed by diverse organizations ranging from volunteer membership organizations to complex hospital systems, (2) they are primarily information returns rather than tax returns, so they typically include a significant amount of narrative text in addition to financial data, and (3) they are subject to public disclosure requirements.

Open questions

To help assess the feasibility of e-filing, the IRS is asking for comments on the following specific issues:

  • Which Form 990 series returns should be introduced first, and why?
  • What factors or concerns would encourage exempt organizations to file electronically?
  • What factors or concerns would discourage exempt organizations from filing electronically?
  • What could be done to address concerns that would discourage exempt organizations from filing electronically?
  • How will your experience with any other IRS e-file program (for example, Form 941, Form 1040, or Forms 8871 and 8872) affect your decision to file your exempt organization returns electronically?
  • Should the system be designed so organizations can use it to satisfy multiple filing or reporting requirements (for example, state reporting requirements or grant reports)?
  • What specific changes to the current Form 990 series of returns would facilitate electronic filing of these forms?

Download IRS Announcement 2002-27 included in Internal Revenue Bulletin 2002-11 dated March 18, 2002. Comments should be sent to the following address: Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC 20224, Attn: Theresa Pattara, T:EO. Or they can be emailed to efile@irs.gov.

-Rosemary Schlank

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