Steering Through Complexities in 990 Filings: A Guide to Paid Preparers and EROs
Find out the key strategies that tax professionals could employ to navigate the complexities of 990 filings
990 filing could be a challenging task for anyone. However, when it comes to bulk filing, the complexity increases to a whole new level. Tax professionals are experts in maneuvering through these complexities, utilizing their expertise to ensure compliance and accuracy. However, even the experts may find it a bit difficult, especially when there is a deadline approaching.
Here, we discuss some strategies that tax professionals could employ to navigate the complexities of 990 filings.
Paid Preparers vs Electronic Return Originator (ERO)
Typically, the tax professionals who deal with nonprofit tax filings are categorized either as Paid Preparers or Electronic Return Originators (EROs). Before delving deeper into the best practices they can follow to manage the 990 filings efficiently, here’s a quick breakdown of the roles and responsibilities of both of them.
Paid Preparers
Paid preparers are individuals or companies hired by taxpayers to assist them in preparing and filing their tax returns. This can include certified public accountants (CPAs), enrolled agents, tax attorneys, and commercial tax preparation firms.
The IRS insists that all tax preparers who receive payment must pass an eligibility check and obtain a Preparer Tax Identification Number (PTIN). However, for those who work as enrolled agents, additional requirements such as a state license or an Electronic Filing Identification Number (EFIN) may be necessary.
Generally, paid preparers must adhere to ethical standards and the IRS’s Circular 230 regulations. The IRS may impose penalties on preparers for errors or misconduct. Paid preparers typically charge clients a fee for their services, which can vary depending on the complexity of the return and the preparer’s expertise.
Responsibilities
Here is the summary of responsibilities that paid preparers may typically have.
- Gathering necessary financial information from clients
- Ensuring accurate completion of tax forms
- Providing clients with advice related to taxes
- Signing and submitting tax returns on behalf of clients.
Electronic Return Originators (EROs)
EROs are authorized entities that transmit tax returns electronically to the IRS on behalf of taxpayers. These include tax preparation software companies, financial institutions, and tax professionals. Electronic filing offers several advantages over paper filing, including faster processing times, reduced error, and the option for depositing funds directly to the IRS.
The IRS must authorize EROs to transmit returns electronically. This typically involves completing an application process online on the IRS site and also adhering to IRS requirements for data security and integrity.
EROs are subject to IRS regulations governing electronic filing, which are outlined in Publication 3112 — IRS e-file Application and Participation, Revenue Procedure 2007–40, and Internal Revenue Bulletin (IRB): 2007–26.
Also, an ERO can become a reporting agent by obtaining a five-digit Reporting Agent PIN to sign on behalf of the client through Form 8655.
Although the IRS does not charge a fee to participate in the IRS e-file program, the EROs can impart charges to their clients based on the services they provide. The charges may vary depending on the merit of their service.
Responsibilities
Here is the summary of responsibilities that EROs may typically have.
- Electronically filing tax returns through IRS-approved channels
- Ensuring the security and confidentiality of taxpayer information during transmission
- Providing taxpayers with confirmation from the IRS
Best Practices for Paid Preparers and EROs
When it comes to managing Form 990 filings, paid preparers and EROs can follow the best practices below for an efficient filing process.
1. Staying Up-to-date with Tax Law Changes
The most critical aspect of any tax professional is staying up to date with the tax law changes and regulations. While the IRS usually didn’t make a lot of changes to the 990 filing requirements in recent years, it’s still essential that you are well aware of whatever has changed in order to ensure tax compliance for your clients.
2. Preparation is Key
Before initiating the filing process, it’s essential to obtain and review all relevant documentation from the client accurately. As you may know, 990 returns require a lot of information. So, having all the necessary information readily available minimizes the possibility of last-minute rushes or oversights.
Next is choosing the e-file provider that can fit your needs. Tax990, a reliable e-filing solution for numerous tax professionals across the country, can be your perfect choice for this.
3. Comprehensive Accuracy Checks
Errors do happen, especially when you are dealing with a large amount of data and mathematical calculations involved. However, even a minor error can make or break an organization’s exempt status, and therefore, ensuring accuracy in your 990 returns is inevitable.
Once you’ve filled out the return, implement thorough review procedures to double-check all data entries. By scrutinizing each detail, mitigate the risk of errors that may lead to audits or penalties, safeguarding both clients and your reputation.
4. Timely Filing Practices
Preparing a 990 is a time-consuming process, and it isn’t a tax form that can prepared overnight. But, no matter what, strict adherence to deadlines is crucial. Missing submission dates can result in penalties and revocation of tax-exempt status. So, establish standards to ensure timely filing, keep track of deadlines, and allocate resources accordingly to meet them.
5. Timely Payment Of Taxes
Even though nonprofits are exempt from taxes, in certain cases, they may be subject to excise taxes, especially private foundations. When filing a 990-PF for such organizations, it’s extremely important to ensure that you collect the tax amount from the client beforehand and complete the payment to the IRS on time. Not just for 990-PF, taxes may also be applicable for 990-T returns.
Conclusion
To excel in this field, tax professionals must adhere to best practices and timely filing practices. Additionally, staying up-to-date with updates in regulations and industry standards is crucial for optimizing workflow and ensuring compliance. By implementing these strategies and maintaining a commitment to preserving sensitive data, tax professionals can navigate the complexities of 990 tax filing efficiently.
