[Editor's Note: This is a companion article to the 2007 Annual Report]
By ANN RICHARDS
The U.S. Internal Revenue Service (IRS) expected 81 million Americans to file their taxes electronically this year — almost twice the number of paper filers, according to The New York Times.
Those numbers are not surprising to Thomas Pollak, a program director for the Urban Institute’s National Center for Charitable Statistics (NCCS). He manages 990 Online, an easy-to-use Web-based program that enables nonprofit organizations of all sizes to prepare their Form 990s, 990-EZs or extension applications via computer. For nonprofits with gross receipts of less than $100,000, use of the software is free.
“We’ve been trying to parallel the IRS process to modernize tax-filing procedures,” Pollak said.
Form 990 is unique in the pantheon of IRS documents because it fulfills two roles — incorporating questions designed to meet the needs of federal tax auditors as well as state charity regulators.
That is why the Urban Institute, with the support of a $300,000 grant from the Mott Foundation in 2007, began working to create an IRS-compatible tax preparation and e-filing system. The project aligns with Mott's long-time interest in supporting and encouraging public accountability within the nonprofit and philanthropic sectors under its Civil Society program. To this end, 990 Online is designed not only to simplify the tax preparation process for nonprofits of all sizes, but also to lead to more accurate and detailed information about the sector.
NCCS piloted “Desktop 990” in 2002. That system, which provided free software that nonprofits could download and use to complete their Form 990s as well as their state charitable registration forms, led the way for 990 Online, which debuted two years later. 990 Online not only makes tax preparation software available to nonprofits in all 50 states, but also permits e-filing directly with the IRS.
NCCS now is working in collaboration with state charity officials to implement e-filing, which currently is available to nonprofits in Michigan and Pennsylvania, and shortly will be offered in California, Colorado, Mississippi and New York.
“E-filing is the key to improving the accuracy, timeliness and utility of information on nonprofit organizations,” said Elizabeth Boris, director of the Center on Nonprofits and Philanthropy at the Urban Institute.
NCCS is planning for “add-on modules” to the program that could be used by researchers, umbrella associations and government agencies to collect performance and outcome data, as well as more detailed information on private contributions, according to Boris.
While the number of charities nationally using the software is modest, 28,000 returns were created using NCCS software in 2007 and the user base is growing. The incentives to prepare and file electronically — particularly the cost savings — are huge, according to Pollak. The number of 990s completed online was up 56 percent from the previous year and the number of electronically filed returns from Michigan and Pennsylvania was up 48 percent.
NCCS also completed an IRS e-postcard system in 2007. Small nonprofits — those falling below the filing threshold of $5,000 in gross receipts for Forms 990 — soon will be required to complete the simple electronic document, which provides the IRS and state regulators with updated information on their addresses and confirmation they are still active.
“It's another incentive to continue encouraging states to integrate their state charity registration and renewal forms into our 990 Online system,” Pollack said.
Another major challenge will be incorporating the recently redesigned Form 990 into the system.
“We’ll be using some of the Mott money to make major upgrades to our infrastructure so the system can more easily provide a customizable and easy-to-use platform for 990 filing and state charity registration,” he said.
990 Online users such as Lizy Kannarkat, an assistant controller at Catholic University of America in Washington, D.C., have praise for the new software.
At the recommendation of its auditing firm, the university purchased some expensive commercial e-filing software, only to find that it was too complicated to use — even for seasoned accountants such as Kannarkat.
“[However,] we were delighted with the quality and ease of use of the 990 Online software,” she said. “We notified our audit firm of our pleasant experience, and they have since recommended it to their other nonprofit clients.”
“It’s easier, it’s secure, it’s more cost-effective, and it yields better-quality data,” Pollak said of 990 Online.
“It’s a win-win situation for charities and for the IRS.”