The Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted last spring, includes four temporary tax changes that are designed to help people and businesses who give to charity this year. Here is a rundown of these key changes.

Update on Mandatory E-Filing in 2021

The Taxpayer First Act, enacted July 1, 2019, requires tax-exempt organizations to electronically file information returns and related forms. The new law affects tax-exempt organizations in tax years beginning after July 1, 2019.

Tax Year 2020 Forms 990-T & 4720 Are Being Revised and Will be Available for E-filing in 2021

In 2020, the IRS continued to accept paper Form 990-T, Exempt Organization Business Income Tax Return, and Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, pending conversion into electronic format.

In 2021, these forms and instructions will be updated and e-filing will be required as described below.

For reporting on tax year 2020, the new Schedule A of Form 990-T will reflect separate reporting of each trade or business as required by the Tax Cuts & Jobs Act of 2017. Filers will report total unrelated business taxable income tax based on Schedule(s) A information and compute the tax on the Form 990-T.

On Form 4720, each taxpayer must file his or her own return. Taxpayers such as disqualified persons can no longer report their tax on the organization’s return.

The IRS expects e-filing to be required for Form 990-T in February 2021 and Form 4720 in March 2021 for tax year 2020 filings. The IRS will announce the specific dates when the programming comes online.

Transition of Form 990-EZ

For small exempt organizations, the legislation specifically allowed a postponement (“transitional relief”). For tax years ending before July 31, 2021, the IRS will accept either paper or electronic filing of Form 990-EZ, Short Form Return of Organization Exempt from Income Tax. For tax years ending July 31, 2021, and later, Forms 990-EZ must be filed electronically. Those who previously filed paper forms will receive a letter from the IRS informing them of the change.

Forms 990 & 990-PF E-filing

Forms 990, Return of Organization Exempt from Income Tax, and 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation, for tax years ending July 31, 2020 and later MUST be filed electronically. More information on software providers is available on the Exempt Organizations Modernized e-File (MeF) Providers page.

Unrelated Business Taxable Income Separately Computed for Each Trade or Business

The Treasury Department and the IRS issued final regulations under IRC Section 512(a)(6), which requires an exempt organization subject to the unrelated business income tax (UBIT) that has more than one unrelated trade or business to calculate unrelated business taxable income (UBTI), separately with respect to each such trade or business. The final regulations provide guidance on how an exempt organization subject to the UBIT determines if it has more than one unrelated trade or business, and if so, how it calculates UBTI.

Update to temporary e-signature memorandum for certain documents

With this memorandum, the IRS is extending its temporary acceptance of certain images of signatures (scanned or photographed) and digital signatures on documents related to the determination or collection of tax liability until June 30, 2021. The IRS is also implementing a temporary deviation that allows IRS employees to accept documents via email and to transmit documents to taxpayers using some secured messaging systems.

Take “A Closer Look”

“A Closer Look” is a new column from IRS leadership that covers a variety of timely issues of interest to taxpayers and the tax community. It also provides a detailed look at key issues affecting everything from IRS operations and employees to issues involving taxpayers and tax professionals. A recent post written by Edward T. Killen, the Acting Commissioner of the Tax Exempt and Government Entities (TE/GE) division, deals with a special tax deduction for cash donations through December 31, 2020 to qualifying charities.

Check here for the latest posts and new updates.

New Issue Snapshots

Visit IRS.gov for a complete listing of available Issue Snapshots.

IRS News Releases

Special $300 tax deduction helps most people give to charity this year – even if they don’t itemize IR-2020-264, November 25, 2020
IRS to employers: Remember February 1, 2021 deadline for Form W-2, other wage statements IR-2020-269, December 3, 2020

If you have a technical or procedural question about Exempt Organizations, visit the Charities and Nonprofits homepage on IRS.gov.

If you have a specific question about exempt organizations, call EO Customer Account Services at 877-829-5500.

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