On July 1, 2019, the Taxpayer First Act of 2019 (the “Act”) was signed into law. The law is generally intended to improve customer relations with the Internal Revenue Service (IRS). However, there are a few provisions that directly affect exempt organizations.
First, the Act mandates electronic filing for all exempt organizations required to file an annual return. The mandate is effective for tax years beginning after July 1, 2019, for those organizations filing Form 990. Form 990EZ filers will have an additional two years before electronic filing is required. Interestingly, at least to tax practitioners, Form 990-T is included in this mandate. Form 990-T has never been eligible to be electronically filed, but the law states that it must be electronically filed for tax years beginning two years after the law was signed. Taxpayers should be able to electronically file Form 990-T beginning in 2021.
The second piece of the Act affecting exempt organizations is a requirement for the IRS to notify exempt organizations before a revocation of their tax-exempt status occurs for failure to file returns. In the past, the revocation was issued automatically after three years of failure to file with no warning. The law now requires a notice to be sent to the organization before the due date of the third return to allow an organization time to file.
Exempt organizations are still feeling the unrelated business income tax sting from the 2017 Tax Cuts and Jobs Act. Legislators are listening to the public outcry over the onerous tax on transportation fringe benefits, aka “the parking tax”. To briefly recap, the parking tax applies to exempt organizations providing parking benefits to their employees. This tax is wide-reaching and often includes simply providing parking spaces in an employer-owned lot for taxpayers at no charge. Many organizations triggering the parking tax have never filed a Form 990-T for unrelated business income tax. Legislators from both sides of the aisle have voiced approval of repealing the tax. The latest attempt to repeal the tax came from the House Ways and Means Committee in tax legislation markup. While there is no guarantee the tax is going away anytime soon, hearing repeated attempts to repeal it gives hope that it may eventually happen.