By ANN RICHARDS
The May 15 deadline for nonprofits to file their IRS Forms 990 and 990-EZ is fast approaching. Nonprofits across the nation now can take advantage of the 990 Online Web site, which provides a user-friendly way to electronically prepare tax returns -- and in Michigan and Pennsylvania file them as well. Developed by the Center on Nonprofits and Philanthropy at the Urban Institute in Washington, D.C. with the support of a $300,000 grant from the C.S. Mott Foundation, the electronic filing system is the key to more accurate reporting on nonprofits, more cost-effective capturing of data, and better oversight of the sector, according to Elizabeth Boris, the center's director. Ultimately, "e-filing" will save millions of philanthropic and government dollars, Boris said. Housed at the Urban Institute's National Center for Charitable Statistics (NCCS), services available through the 990 Online Web site are free to nonprofit organizations with less than $100,000 in gross receipts. Tom Pollak, a program director at NCCS who has worked with the Internal Revenue Service and state charity regulators since 1999 to develop the tax preparation and e-filing software, recently spoke with Ann Richards, a Communications Officer for Mott, about the advantages of this new system.
Mott: In 2002, several states went live with the new NCCS e-filing software. In 2004, NCCS’s new 990 Online Web site became the first system to permit e-filing of the Form 990-EZ directly with the IRS. What are the advantages of using the new program and how has this new technology been received?
Pollak: There are a couple of real advantages to the Web site we've developed. Most obviously, the system does the all the math for you. It offers standard formats for virtually all of the schedules and attachments that nonprofits need to file, and you don't have to browse through 40 pages of instructions to complete the form. When you are done with your form, it checks to make sure that all required sections and attachments are complete. Another big advantage is that when you use the system the next year, the program descriptions, board lists, and other information that stays more or less the same from year to year is automatically imported into your new return. It's a real time-saver for nonprofits.
For nonprofits with gross receipts of less than $100,000, use of the software is free. We've instituted modest fees for larger nonprofits, because we hope to make the 990 Online self-supporting within the next few years. We've had several large, national nonprofits use the system successfully. And over the last six months, we've completed an e-Postcard system for the smallest nonprofits -- those with less than $25,000 in gross receipts. Over the long run, we anticipate that the e-Postcard will make it easy for small nonprofits to check in with the IRS each year, and easier for donors and other stakeholders to get an accurate picture of the nonprofit landscape.
Another big advantage is that e-filing is more secure than paper filing. Obviously security is a huge issue for the IRS, and we seek to provide an equally secure system. We use PayPal for credit card transactions so payment transmissions are completely secure.
The system is Web-based -- any nonprofit with an Internet connection and a standard browser such as Microsoft Internet Explorer or Firefox should have no trouble using it. It doesn't directly link with accounting systems, but it allows you to import key information such as the lists of board members, grants and contributors from Excel spreadsheets.
Mott: What states currently make this software available to nonprofit organizations?
Pollak: Nonprofits in every state can use this software to complete their federal return. Right now, nonprofits in Michigan and Pennsylvania can also use the 990 Online to e-file their state forms as well. Organizations that are registered in California, New York, Colorado, and Mississippi will soon be able to e-file in those states. One of our biggest challenges is working with state charity officials to make the system widely available. But it costs money to upgrade technology, and a lot of the state charity regulators don't control their own IT budgets. As the IRS moves to require more organizations to e-file, we anticipate more interest in the 990 Online. In the long run, adapting to electronic filing will be hugely valuable in terms of cost-savings.
Mott: What are some of the other big challenges related to electronically preparing 990 forms or extensions?
Pollak:
Well, the biggest challenge right now is that the IRS has redesigned the 990. They've made major improvements to the form, but adapting our software -- making it compatible with the new form -- will be a huge cost endeavor that will preoccupy much of this coming year. The IRS still requires electronic filers to submit a signature form via fax or mail -- we'd like to eliminate that. We also want to continue making our software easier to use. Longer term, we are designing our new system so that it can be customized to meet the needs of funders seeking additional information from their grantees or umbrella associations trying to collect data from their members. Collecting this information through the Form 990 process could be a lot easier than trying to get organizations to complete member surveys that often ask questions that are similar to what’s already on the 990.
Mott: What do users have to say about the 990 Online software?
Pollak:
We've had a number of nice letters and comments -- and cash donations to support the work -- from organizations who have used the software and our tech support. A very small agency with no overhead expenses or paid staff said they would have had to hire an accountant without the software -- they put the savings toward their work preventing domestic abuse. Another client -- a university -- wrote that they were delighted with the software's quality and ease of use. They also appreciated the appearance of the finished forms. Apparently they had tried another online service recommended by their auditing firm and it was too complicated. Now the auditors are recommending 990 Online.
Mott: We've talked a lot about the advantages of the 990 Online for users, but what are some of the other benefits of e-filing?
Pollak:
Putting on my researcher hat, I'd say there are tremendous implications for data collecting. We'd like to expand the system's ability to collect supplemental information. Posting this information online will make it available much more accurately and quickly than key-punching it by hand and scanning documents, which is how the IRS currently handles 990 information. In the grand scheme, it would be great if we could use electronic filing to make more management data available to nonprofits. They could use the data to figure out how they're performing in comparison to nonprofits of a similar size. Ideally, they could access the data to make more sound programmatic and financial decisions.
E-filing is one of those win-win processes for charities and the IRS. Error rates are vastly lower when you e-file; the cost of processing the information for the IRS and other users is vastly lower as well. In preparing for this project in 2002, our surveys indicated that technical capacity is not a serious barrier to electronic filing. Of the very smallest organizations -- those with zero paid staff that prepare Form 990 internally, 86 percent reported having Internet access. Based on our experience with the e-Postcard project this year, we believe that the percentage is far higher now. As of 2007, more than 28,000 Form 990s, 990-EZs and extensions had been created using the 990 Online software. The number of charities using the software is modest but it's growing -- the incentives to file electronically are huge.