By Keith Jennings

Two pieces of legislation passed in mid and late 2019 have major tax implications for nonprofit organizations.

Repeal of Tax on Nonprofit Transportation Benefits

On December 20, 2019, the federal government gave all nonprofits an early holiday present by repealing the burdensome unrelated business income tax (UBIT) on qualified transportation benefits provided to employees. The repeal was part of a Revenue Provision in H.R. 1865 and any amounts previously paid after December 31, 2017 for qualified transportation fringe benefits, including expenses for parking facilities and mass transit benefits, are no longer subject to UBIT. Thus making any tax liability incurred for these benefits in 2018 as if it never happened!

The IRS has finalized the guidelines on how to request a refund – the 2018 Form 990-T must be amended with the words “Amended Return – Section 512(a)(7) Repeal” across the top of the return. Here is the IRS link with more information – https://www.irs.gov/forms-pubs/how-to-claim-a-refund-or-credit-of-unrelated-business-income-tax-ubit-or-adjust-form-990-t-for-qualified-transportation-fringe-amounts

Taxpayer First Act Mandates Electronic Filing for all Tax-Exempt Organization Returns

On July 1, 2019, the President signed into law a piece of bipartisan legislation to help usher the filing of exempt organization tax returns into the 21st century with the Taxpayer First Act (H.R. 3151). This law contains two major provisions related to tax-exempt organizations, each of which is discussed in further detail below:

Mandatory Electronic Filing

Prior to the Taxpayer First Act, only tax-exempt organizations with year-end assets of $10 million or more filing at least 250 returns (including Form W-2s and 1099s) during a calendar year had to file their Form 990s electronically. Even with this requirement, most organizations voluntarily chose to file their Form 990 series returns electronically due to how much quicker and easier it is than mailing a paper return to the IRS. The only tax-exempt organization return type that was prohibited from being electronically filed was the Form 990-T for unrelated business income (UBI), even though payments for any unrelated business income tax due are generally required to be submitted through the Electronic Federal Tax Payments System (EFTPS).

Effective for taxable years beginning after July 1, 2019, all tax-exempt organization returns, including the Form 990-T, are required to be electronically filed. Smaller organizations with annual gross receipts of less than $200,000 and total year-end assets of less than $500,000, are afforded a delay in the requirement, until taxable years beginning after July 1, 2021.

Organizations are not the only ones who benefit from this electronic filing requirement, donors and the general public do as well. With all returns being electronically filed, the IRS is able to provide more information to donors through the “Tax Exempt Organization Search” function of their website (https://apps.irs.gov/app/eos/). Previously, the public would only be able to view PDF versions of Form 990 returns through websites like ProPublica and GuideStar, or by downloading a large cumbersome data file from the IRS. In recent months, the IRS has begun to not only upload PDF versions of Form 990 returns to their website, but also upload tax-exempt determination letters for recently approved tax-exempt organizations. This is a major step toward improving transparency and increasing the public’s access to this information, which will only continue into the future.

Notice of Revocation

Another benefit to tax-exempt organizations from the Taxpayer First Act is that the IRS must notify exempt organizations in advance prior to revoking their tax exempt status for failure to file return information. Prior to this Act, organizations were notified of an automatic revocation after three consecutive years of noncompliance, such as a failure to file, related to tax filings. Effective for the second year of required returns to be filed after December 31, 2019, the IRS is essentially required to provide organizations with a one year warning prior to any revocations. If the IRS has no record of having received a return from the organization for two consecutive years, the IRS must inform the organization that the organization’s tax exempt status will be revoked if they fail to file a return for the third consecutive year. This will hopefully minimize the number of organizations that have their tax-exempt status revoked and the burdensome filings to restore the status.