The Minnesota Council of Nonprofits (MCN) recently provided feedback to the IRS in response to the IRS’ request for public comment on various IRS forms to help reduce paperwork and respondent burden. The most recent invitation for feedback included Form 1023-EZ and Form 990.
In the letter to the IRS, MCN had three points of feedback and direct asks:
1. MCN urged the IRS to withdraw the current Form 1023-EZ and engage stakeholders (charitable regulators, nonprofit infrastructure organizations, funders, and tax-law practitioners) to develop a workable replacement for the form.
- Multiple reports have concluded that Form 1023-EZ fails to provide sufficient information for the IRS to make informed decisions as to whether an organization qualifies to be exempt from some taxes under section 501(c)(3). If the IRS required additional information and/or tightening the application requirements for the Form 1023-EZ, then it would help regulate that this form is used only for organizations who meet the criteria. For more information on why this is so important, please see the National Council of Nonprofit’s IRS Form 1023EZ webpage.
2. MCN recommends that the IRS commit to a more thorough analysis of Form 990, Part VIII with the goal of eliciting stakeholder input on how nonprofits can best report revenues earned pursuant to written agreements with governments at all levels. As one of the country’s leading sources of research on the nonprofit sector, we know that the quality of our research depends heavily on the quality of data provided by nonprofits in their Forms 990.
- The Form 990 does not include a dedicated line where nonprofits can report government reimbursements. Rather, “contributions and grants” are lumped together, with an unclear distinction between revenue for “grants” that benefit the public versus payments under “contracts” that serve the needs of a governmental unit.
- Additionally, MCN believes that the format of Form 990 perpetuates the flawed narrative about nonprofit dependence on government funding. Therefore, MCN recommends a reconsideration of the terms “contributions”, “grants”, and “contracts”.
- Finally, MCN highlights the scarcity of data on nonprofit revenue from government broken down by all levels of government. Therefore, MCN advocates for better data that does not lump federal, state, county, city, and other municipal body grants together.
3. MCN recommends that the IRS continue to take steps to improve the release of Form 990 information
- Our recommendation is that the IRS make data from Form 990 publicly available more quickly. Delays in the release of this information can undermine the public’s confidence in nonprofits. Delays can also impact operations and compliance with governance, management, and fundraising.
If you are interested in reading the full letter MCN sent, you can find the letter here.