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The TEGE Exempt Organizations Council (Council) has commented on errors in the IRS's Exempt Organizations Business Master File (EO BMF) and recommended ways for the IRS to correct those errors.

Growing concerns with the IRS's tax-exempt filing and access systems

Currently, the IRS uses different databases for internal administration and external resources accessible to the general public. The IRS Exempt Organizations Business Master File (EO/BMF) extract is the main IRS resource available to external users to obtain information on tax-exempt institutions, including tax-exempt and foundation classifications and accounting period detail. EO/BMF data is often used by exempt organizations, donors, regulators, the media and watchdog groups. Growing concerns regarding misinformation in the EO/BMF and lag times for crucial updates to the EO/BMF have led the TEGE Exempt Organization Council (Council) to respond to the IRS's request for comments and feedback on "opportunities to expand and enhance tax certainty and issue resolution … whether it's by enhancing existing programs and tools or developing new ones."

The TEGE Exempt Organization Council notes in its comments that, when an exempt organization asks the IRS to correct erroneous information published on the EO/BMF database, it often takes the IRS months and sometimes years to complete the update. Those delays in IRS responses to update requests can result in decreased contributions to an exempt organization, increases in IRS notices to the organization, missed filings, and more time spent with the IRS attempting to resolve the errors.

According to the TEGE Exempt Organization Council, misinformation in the EO/BMF has led to a growing number of routine rejections of annual Form 990-series electronic filings and IRS notices, due to conflicting detail between the EO/BMF and data transmitted with the Form 990-series returns. For instance, the IRS has incorrectly reclassified some public charities as private foundations or 501(c)(4) organizations and has erroneously changed the accounting periods of other organizations Exempt organizations heavily rely on public donations to maintain their annual campaigns and fund their charitable endeavors. If the public is unable to confirm the charity status of an exemption organization through the IRS EO/BMF, exempt organizations may lose, or suffer a decrease in, charitable contributions, which may in turn heavily disrupt public support and lead to significant funding and status ramifications.

TEGE recommendations

The Council recommends automating systems to allow exempt organizations to submit filings electronically and receive instant feedback. According to the Council, "electronic submissions would prevent at least some obvious initial errors by catching them at the outset (much like the pay.gov platform does on filed Forms 1023-EZ, 1023, 1024-A and 1024, along with the e-filed Form 1040 for personal tax returns)." Electronic submissions also "would save time spent typing or scanning on the IRS's end, not to mention the potential need to correct transcription errors later," the Council said.

The Council also suggests the IRS appoint an EO Czar, who would assess where EO-related IT operations and systems, and exempt organizations' interface with those systems, need to be improved or simplified, and make the assessment's results a priority when "planning for BMF's replacement." The EO Czar also could establish a system that would allow exempt organizations to access their filing and payment history.

In addition, the Council recommends the IRS:

• Devote more resources to programming staff to support exempt organizations' needs
• Test and receive feedback "when evaluating existing or adding more-modernized language software platforms"
• Establish ways for the public to verify information for organizations that are not on the EO BMF Extract due to an IRS error or incorrect data in the EO/BMF
• Focus on "limitations and issues requiring immediate attention" (e.g., developing automated process to receive and acknowledge group ruling roster updates and requests for EO/BMF corrections, implementing a helpline for exempt organization practitioners)

While the IRS cannot anticipate every workaround or error that may appear, the Council notes that it can minimize the number and severity of those problems by making the public-facing and interactive parts of IRS systems as accessible and error-free as possible while maintaining open lines of communication among all interested parties. According to the Council, this increase in accessibility would greatly aid tax-exempt organization filers in navigating complex exempt organization filings, especially given the current deficiencies in the IRS platforms and lack of automation.

Implications

Implementing the Council's recommendations, should funding be available for the IRS to make any of the changes previously noted, would take time. Until the IRS makes those corrections, exempt organizations can work directly with their tax advisors and the IRS to update their EO/BMF records to correct errors. By proactively monitoring the EO/BMF, exempt organizations can identify and work to correct inaccuracies, so they can timely file their returns. In addition to noting certain changes on its annual Form 990-series filing (e.g., name, address), exempt organizations should consider notifying the IRS as soon as the changes take place by completing and filing the appropriate form (for example, Form 8822-B, Change of Address) or notifying IRS Exempt Organizations of the appropriate change and requesting to update the EO/BMF.