Although the major majority (92 percent) of tax returns are filed electronically, the IRS is seeking full conversion to e-filing. Two sections of The Taxpayer First Act of 2019 (TFA) extend that mandate by requiring more businesses, partnerships and nonprofit organizations to e-file.
If your business or organization is not yet filing tax returns electronically, you should be aware of these changes and the pertinent deadlines to comply.
Section 2301 Expands Use of Electronic Filing
Prior to the TFA, the IRS could only require those taxpayers who file more than 250 returns per year to file them electronically. The threshold number of returns filed in a calendar year includes year-end tax returns and information returns such as Form W-2, “Wage and Tax Statement,” and Form 1099, “Miscellaneous Income.” Section 2301 expands the use of e-filing over the course of the next few years, eventually lowering the threshold in 2022 to just 10 or more returns per year.
Phase-in Rules for Partnerships
Partnerships with more than 100 partners must e-file Form 1065, “U.S. Return of Partnership Income,” and associated Schedule K-1s. Electronic filing will be required if the following returns are filed in a calendar year:
- 2018 – 200 returns
- 2019 – 150 returns
- 2020 – 100 returns
- 2021 – 50 returns
Beginning in 2022, all partnerships that file more than 10 returns in a calendar year will be required to file electronically, regardless of the number of partners.
Section 3101 Applies to Nonprofit Organizations
Only the smallest and largest nonprofit organizations previously were required to e-file returns. For tax years beginning after July 1, 2019, all tax-exempt organizations must file their returns electronically. This rule simplifies delivery of returns to the IRS and in turn, the IRS will be required to make available e-filed returns in machine-readable format to tax exempt organizations.
Nonprofit organizations with assets of $10 million or more that file at least 250 returns during a calendar year must e-file Form 990, “Return of Organization Exempt From Income Tax.” Private foundations and charitable trusts, regardless of asset size, that file at least 250 returns during a calendar year must e-file Form 990-PF, “Return of Private Foundation.”
As part of its efforts to reduce manual paper filing, the IRS also is electronically issuing Form 1023, “Application for Recognition of Exemption Under Section 501(c)(3).”
These filing changes may be onerous for some nonprofits and may require investment in accounting software and tax advice. Nonprofit organizations should be aware that if they fail to meet filing requirements for three consecutive years, the IRS will automatically revoke their tax-exempt status.