March 2002

• Introduction
• Form 990 Background
• Nonprofit Data Quality
• E-Filing Pilot Project and Free 990 Preparation Software
• Benefits of E-Filing
• Other Beneficiaries of Quality Data from Electronic Reporting

Introduction

Since 1995, the number of individual taxpayers taking advantage of electronic filing to file their 1040 tax returns has increased as much as 30 percent each year, as people discover the convenience (and faster refunds) of e-filing. In 37 states and the District of Columbia, taxpayers can e-file their federal and state tax returns in one transmission. Yet nonprofit organizations must still mail hard copies of their Forms 990 and state registration to the Internal Revenue Service and state charity officials.

This practice will change soon, as the IRS may offer nonprofits an e-filing option as soon as 2004, for fiscal year 2003. A number of states are moving to provide e-filing for state registration, with Pennsylvania and Colorado at the forefront.

The change will benefit nonprofit organizations, their accountants, the IRS, state regulators, and charitable donors. In addition to improving accuracy and speed, e-filing will also improve the quality and usefulness of nonprofit sector data.