How the Taxpayer First Act Will Impact Nonprofits

By: Jeffrey A. Kowalczyk CPA CFE CGAP, Partner

Barbacane, Thornton & Company

The Taxpayer First Act (the Act) of 2019 was signed into law on July 1, 2019. The bill, having gone through a few changes on its way to the president’s desk, passed with bipartisan support – a rare thing in Washington these days. The law aims to reform the Internal Revenue Service (IRS) by making it more taxpayer-friendly and has been praised by the American Institute of Certified Public Accountants (AICPA). The summary of the bill, its titles and subtitles signal a much-needed pivot to the way the IRS fits into the 21st-century economic narrative. Among the areas of impact, the main themes include customer service, enforcement procedures, cybersecurity and identity protection, management of information technology, and use of electronic systems.

While this law offers many provisions for individual taxpayers, it also affects nonprofits. The law modernizes filing requirements that if ignored, will result in significant consequences. Any nonprofit organization that fails to uphold these new requirements for three consecutive years will automatically lose its tax-exempt status.

Starting in 2021, almost all tax-exempt organizations will file Forms 990, 990-PF, 990-EZ, and 990-T electronically, regardless of their asset status or their number of returns. The Act also requires the IRS to make Form 990 available to the public as soon as practicable in a machine-readable format. The implication here is that this information will be readily available to agencies, so nonprofits should take care to position the form for public consumption.

Nonprofits need to take a few additional details into account.

First, the Act requires the IRS to notify organizations that have not filed a return for two consecutive years. Chances are, your filing procedures are up to snuff. If they aren’t, don’t allow a lapse in communication stymie an opportunity for a second chance. Ensure the IRS has accurate contact information.

Second, the Act mandates that new e-file procedures go into effect for filers at different rates. For instance, nonprofit filers whose fiscal year begins on July 1, 2019, will receive a transitional reprieve.  The new e-file procedures are effective for years beginning AFTER July 1, 2019. See table below:

 

  Beginning MUST E-File ON
CalendAr year filers January 1, 2020 May 15, 2021
Fiscal year filers July 2, 2019 November 15, 2020+
fiscal year filers July 1, 2019 November 2021

Nonprofits whose gross receipts amount to less than $200k and total assets less than $500k, and organizations that file a 990-T can expect transitional relief. The new law will allow the IRS to delay the mandatory filing for up to two years.

For most, the Taxpayer First Act is a welcome change. The Act helps protect business owners from IRS seizures and allows them to avoid the expenses and time-consuming process of having to go through the courts to reclaim their assets. One of the most critical components of the new law is the attention to cybersecurity and customer service. For nonprofits, the changes are aimed at increasing accountability and transparency.

If you have any questions about the law in its entirety or want to know how your organization should prepare for the changes, give the professionals in our office a call today.