April 18, 2014


IRS makes progress in creating Interactive Form 1023

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EO Director Lois Lerner

EO Director Lois Lerner

The IRS Exempt Organizations Division (EO) announced an "exciting development" in its efforts to provide the long-awaited Interactive Form 1023. The IRS uses Form 1023 to determine whether applicants qualify for recognition as an exempt organization pursuant to IRS section 501 (c)(3), which allows them to receive tax-exempt charitable contributions.

At a recent Georgetown Law School's conference on nonprofit organizations, EO Director Lois Lerner stated that an interim Interactive Form 1023 will be made available later in FY2013. She credited a fast-changing technology environment that is making once impossible tasks "very doable today."

Improvements to the current Form 1023 will permit applicants to access IRS educational resources through the interactive pop-up links embedded in the form.  Improved quality and consistency of exemption applications is anticipated to result in increased efficiency of IRS review.

Public comment will be sought before the new form is fully implemented. The final form, however, will not be fileable electronically online.  Applicants will still download and mail a printed paper copy to the IRS.

The IRS Advisory Committee of Tax Exempt and Government Entities (ACT) June 2012 Report of Recommendations urged the IRS to "develop more educational tools about Form 1023 including tips for filing Form 1023, and more information about the substantive requirements for recognition of exemption." 

"This announcement of an educational Interactive Form 1023 is consistent with the report's third recommendation," states Raleigh attorney Marty Martin, who co-authored the report and currently serves on the ACT committee.   

More importantly, Martin notes that the interactive form serves only as an interim step toward fulfilling the 2012 report's primary recommendation that the IRS "commit the necessary resources (human, financial, and technical) to transform Form 1023 to an interactive web-based Form e-1023 that can be filed electronically and stored, transmitted, and disseminated in an electronic database format. "

The overhaul of Form 1023 is part of broader efforts to move the IRS EO Division to more electronic filing, as evidenced by the February Aspen Institute Philanthropy & Social Innovation report,  Information for Impact: Liberating Nonprofit Sector Data.  The report examines how "information found in the Form 990, like other important data collected by the government, could potentially be far more useful if it were not only public but ‘open'-thus, searchable and interactive as opposed to the forms currently available as pictures that do not allow for easy data collection."

Additionally, the Treasury Department issued General Explanations of the Administration's Fiscal Year 2014 Proposals, a report that addresses making e-filing mandatory for exempt organization (see page 174): "Expanding e-filing of Form 990 series returns would help promote a stronger tax-exempt sector by improving the quality of the data used by the Internal Revenue Service (IRS) for tax administration and the timeliness of the public disclosure of the return data."

The Treasury report adds that such data "may be used by donors to make more informed contribution decisions and by researchers, analysts, and entrepreneurs to understand the tax-exempt sector better and to create information tools and services to meet the needs of the sector. The Form 990 series return data would also be useful to state and local regulators, charity watch-dog groups, charitable beneficiaries, and the press. In addition, e-filing would allow the IRS to process returns at a lower cost than when paper returns are filed."

More than 55,000 organizations - ranging from very small, all-volunteer entities to large and complex organizations - file a Form 1023 annually. It has been revised several times since it was introduced more than 50 years ago; the last revision made it "significantly more complex" as well as inconsistent with legislative changes and another form.

The 2012 ACT report reiterates a recommendation of a 2003 ACT report, which urged creation of a fully e-fileable Form 1023 to eliminate filing errors and increase efficiency of IRS review. "Providing an updated form with enhanced educational content that can be prepared and filed electronically will be of enormous value to the IRS and the organizations it regulates, as well as the other stakeholders and the sector as a whole," states the 2012 report. It also acknowledged significant budget and personnel impacts related to development and implementation.

EO's Lerner agrees. "We looked into what is now possible, and for a much, lower cost, we have been able to incorporate materials ... into a draft Interactive Form 1023 that provides education and assistance to applicants while they fill out the form," she stated at the conference. "We will announce the release of the draft Interactive 1023 on our website and through the EO Update, our free e-newsletter."The IRS Exempt Organizations Division (EO) announced an "exciting development" in its efforts to provide the long-awaited Interactive Form 1023. The IRS uses Form 1023 to determine whether applicants qualify for recognition as an exempt organization pursuant to IRS section 501 (c)(3), which allows them to receive tax-exempt charitable contributions.

At a recent Georgetown Law School's conference on nonprofit organizations, EO Director Lois Lerner stated that an interim Interactive Form 1023 will be made available later in FY2013. She credited a fast-changing technology environment that is making once impossible tasks "very doable today."

Improvements to the current Form 1023 will permit applicants to access IRS educational resources through the interactive pop-up links embedded in the form.  Improved quality and consistency of exemption applications is anticipated to result in increased efficiency of IRS review.

Public comment will be sought before the new form is fully implemented. The final form, however, will not be fileable electronically online.  Applicants will still download and mail a printed paper copy to the IRS.

The IRS Advisory Committee of Tax Exempt and Government Entities (ACT) June 2012 Report of Recommendations urged the IRS to "develop more educational tools about Form 1023 including tips for filing Form 1023, and more information about the substantive requirements for recognition of exemption." 

"This announcement of an educational Interactive Form 1023 is consistent with the report's third recommendation," states Raleigh attorney Marty Martin, who co-authored the report and currently serves on the ACT committee.   

More importantly, Martin notes that the interactive form serves only as an interim step toward fulfilling the 2012 report's primary recommendation that the IRS "commit the necessary resources (human, financial, and technical) to transform Form 1023 to an interactive web-based Form e-1023 that can be filed electronically and stored, transmitted, and disseminated in an electronic database format. "

The overhaul of Form 1023 is part of broader efforts to move the IRS EO Division to more electronic filing, as evidenced by the February Aspen Institute Philanthropy & Social Innovation report,  Information for Impact: Liberating Nonprofit Sector Data.  The report examines how "information found in the Form 990, like other important data collected by the government, could potentially be far more useful if it were not only public but ‘open'-thus, searchable and interactive as opposed to the forms currently available as pictures that do not allow for easy data collection."

Additionally, the Treasury Department issued General Explanations of the Administration's Fiscal Year 2014 Proposals, a report that addresses making e-filing mandatory for exempt organization (see page 174): "Expanding e-filing of Form 990 series returns would help promote a stronger tax-exempt sector by improving the quality of the data used by the Internal Revenue Service (IRS) for tax administration and the timeliness of the public disclosure of the return data."

The Treasury report adds that such data "may be used by donors to make more informed contribution decisions and by researchers, analysts, and entrepreneurs to understand the tax-exempt sector better and to create information tools and services to meet the needs of the sector. The Form 990 series return data would also be useful to state and local regulators, charity watch-dog groups, charitable beneficiaries, and the press. In addition, e-filing would allow the IRS to process returns at a lower cost than when paper returns are filed."

More than 55,000 organizations - ranging from very small, all-volunteer entities to large and complex organizations - file a Form 1023 annually. It has been revised several times since it was introduced more than 50 years ago; the last revision made it "significantly more complex" as well as inconsistent with legislative changes and another form.

The 2012 ACT report reiterates a recommendation of a 2003 ACT report, which urged creation of a fully e-fileable Form 1023 to eliminate filing errors and increase efficiency of IRS review. "Providing an updated form with enhanced educational content that can be prepared and filed electronically will be of enormous value to the IRS and the organizations it regulates, as well as the other stakeholders and the sector as a whole," states the 2012 report. It also acknowledged significant budget and personnel impacts related to development and implementation.

EO's Lerner agrees. "We looked into what is now possible, and for a much, lower cost, we have been able to incorporate materials ... into a draft Interactive Form 1023 that provides education and assistance to applicants while they fill out the form," she stated at the conference. "We will announce the release of the draft Interactive 1023 on our website and through the EO Update, our free e-newsletter."

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