IRS Update: New Electronic Requirements and Developments

Amy M. Hebbeler, Fraternal Law Partners, amy.hebbeler@manleyburke.com

Patrick K. Hogan, Fraternal Law Partners, phogan@manleyburke.com

The pandemic and labor shortage has compelled organizations to explore virtual options for various operations. The Internal Revenue Service is not an exception. As more filings are now required to be submitted electronically and processes have been streamlined, various issues have arisen. Below are a few important developments in IRS filings that fraternal organizations should be aware of.

1. Form 990 series is now required to be filed electronically.
   1. The Taxpayer First Act, enacted on July 1, 2019, intended to modernize IRS systems, requires tax-exempt organizations to electronically file IRS Form 990s and related forms. The Act was slowly rolled out with various exemptions for smaller organizations. At this point, nearly all organizations that file Form 990, Return of Organization Exempt from Income Tax or Form 990-EZ (Short Form Return) MUST file electronically through an approved IRS e-file provider.^[1] Organizations eligible to submit Form 990-N (annual gross receipts less than $50,000) must do so electronically through IRS.gov. It is very important for organizations to file their annual return, or risk losing tax-exempt status.
   2. The goal of electronic filing is to streamline IRS processes and reduce processing time, making compliance with reporting requirements easier. Furthermore, if information in an organization’s electronically filed return does not match the IRS database (e.g., tax-exempt status or fiscal year end) the return will not be accepted until the discrepancy is corrected. For example, we have assisted clients who originally received an IRS determination letter stating that they are exempt under IRC Section 501(c)(2) and are thus listed on the IRS records as same. However, at some point the organization started indicating on its Form 990 that it was exempt under IRC Section 501(c)(7). In order to change an organization’s exempt status after receiving a determination letter it will need to file a Form 1024, it cannot just change the section on Form 990. Therefore, the organization was still listed on the IRS records as exempt under Section 501(c)(2) and was required to file its Form 990 electronically as same until it changed its exemption by filing a Form 1024. Thus, it is imperative to ensure your organization’s information is correct when reviewing the return.
2. Form 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code and Form 1024 Application for Recognition of Exemption Under Section 501(a) or Section 521 of the Internal Revenue Code are now required to be filed electronically through pay.gov.^[2]
   1. To file Form 1023 or Form 1024, the filer must have a pay.gov account and will need to complete the form entirely online. Any attachments (Articles of Incorporation, Bylaws, Form 2848, and supplemental information) will need to be uploaded in one PDF.
   2. The electronic Form 1023 and Form 1024 each require slightly different information from the previous forms. Some changes include the required information in the narrative of activities and the financial information. It is important to ensure the organization is including accurate and complete information.
3. Group Exemption Application Update
   1. In the September 2020 issue of the Fraternal Law Newsletter, we discussed the IRS Proposed Group Exemption Rules.^[3] As noted in that article, the previous Rev. Proc. 80-27 will continue to apply until the proposed rules are finalized. However, the IRS stopped accepting requests for group exemption letters on June 17, 2020. As of the date of this Newsletter, the IRS has not finalized the proposed rules.
4. Group Exemption Subordinate list is no longer mailed to central organization but must still be submitted to the IRS.
   1. The IRS issued the following notice: As of January 1, 2019, IRS stopped mailing lists of parent and subsidiary accounts to central organizations (group ruling holders) for verification and return. Central organizations must still comply with the annual reporting requirements in Section 6 of Revenue Procedure 80-27. As noted in the Revenue Procedure, the required information must be submitted at least 90 days before the close of the central organization’s annual accounting period. So, for example, a central organization with a June 30, 2019, year end would submit its update by April 1, 2019. The required information includes the names, addresses, and employer identification numbers of subordinate organizations that have terminated, disaffiliated from the group, been added to the group, or changed names or addresses. If there are no changes, the central organization must submit a statement to that effect.^[4]
5. Automatic Revocation Notices
   1. The IRS suspended the issuance of several notices generally mailed to tax-exempt organizations in case of a delinquent return. Due to the pandemic, the IRS has several million returns waiting to be processed. The suspension of the notices will help avoid confusion when a filing is still waiting to be processed. Generally, there is no need to call or respond to the notices as long as the return was filed timely. The notice readers would likely receive is Notice CP259A, which is sent to delinquent Form 990/990EZ/990N filers. The IRS will announce the appropriate time to resume mailing these notices.
   2. This suspension of notices does not relieve organizations of their Form 990 filing requirements. Three consecutive years of not filing an organization’s return leads to automatic revocation of its tax-exempt status. Suspension of delinquent filing notices is not an excuse for failure to file a return. Reinstating tax-exempt status is a timely and complicated process and takes resources away from furthering your organization’s mission.

[1] Manley Burke, LPA is an approved IRS e-file provider. Please contact phogan@manleyburke.com

 for additional information.

[2] https://www.pay.gov/public/home.

[3] Amy Hebbeler, IRS Proposed Group Exemption Rules, 166 Fraternal L. 8 (Sept. 2020). 

[4] Group Exemptions and Group Returns, IRS, https://www.irs.gov/charities-non-profits/group-exemption-rulings-and-group-returns.