The IRS has announced two administrative developments affecting tax-exempt organization: electronic filing of Form 8940 and the future termination of the Business Master File.

Form 8940

The IRS announced in Revenue Procedure 2023-12 that Form 8940, Request for Miscellaneous Determination, will have to be filed electronically beginning April 4, 2023. Although an electronic version of Form 8940 is now available, the IRS will continue accepting paper versions of Form 8940 for the 90 days following April 4, 2023.

The electronic form should be filed at www.pay.gov with the required information and the applicable user fee. It must also be electronically signed by an authorized individual under penalties of perjury.

Exempt organizations use Form 8940 for miscellaneous determinations under IRC Sections 509(a), 4940, 4942, 4945 and 6033, including requesting changes in foundation status, exemptions from Form 990-series filing requirements and advance approvals of certain actions by private foundations.

In addition, the following miscellaneous requests must now be made on Form 8940:

• Requests by government entities for voluntary termination of exempt status under IRC Section 501(c)(3)
• Requests by Canadian charities for public charity classification determinations and inclusion in the Tax-Exempt Organization Search (TEOS) database of organizations eligible to receive tax-deductible charitable contributions
• Notice by private foundations of intent to terminate their private foundation status under IRC Section 507(b)(1)(B)

Termination of Business Master File

The IRS also recently released its Strategic Operating Plan (Plan) to describe how it plans to utilize funding provided by the Inflation Reduction Act. For instance, the IRS plans to focus on improving taxpayer services, expand enforcement of tax law, and better utilize new technology and data analytics.

Plan goals specific to tax-exempt organizations include replacing legacy databases such as the Business Master File (BMF), which lists information on each entity recognized by the IRS as taxable or tax-exempt. Currently, the IRS aims to retire this system and migrate the information to a new, updated database by fiscal year 2027.

Implications

The pronouncement requiring Form 8940 to be e-filed reflects the IRS's dedication to streamlining taxpayer filing processes and conserving resources. If a Form 8940 filing is necessary, the tax-exempt organization should review the form's revised instructions to determine what and how to report, and file electronically rather than by paper (unless within the 90-day transition period) to conform to the new filing mandate.

The IRS's planned migration from its Business Master File system to a new database should ultimately (e.g., in 2027 or later) result in more accurate IRS data on tax-exempt organizations. Inclusion of this planned migration within the Strategic Operating Plan indicates that the IRS has recognized the need to maintain more accurate data on taxable and tax-exempt organizations and relieve the burden imposed on those organizations by such an outdated system.

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Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor