NASCOnet & State E-Filing

1. NASCOnet & State E-Filing January 2005

2. This Presentation • Overview • How E-Filing and XML Work • NASCOnet XML SuperSchema • Implementation of State Charity Office Registration System • Timeline & Costs

3. I. Overview

4. The Problem • Too much paper...for nonprofit organizations, state charity officials, & the IRS • An inefficient system • Difficult for charities that file in more than 1 state

5. Federal E-Filing Used by Millions • 60 million returns have been e-filed in 2004. • Of these, 43.2 million individual tax returns were e-filed by Tax Professionals. • “E-file brings you customers - and Tax Professionals who e-file report using an average of 10 minutes less per return!” • “Smart - IRS provides an official acknowledgement that your client's return was received. And, through integrated e-file and pay options, you can help your client e-file and pay at the same time!” • Fed-State individual income tax e-filing available in 37 states & DC. • 6.7 million business returns were e-filed in 2003 Source: http://www.irs.gov/efile/

6. The Potential for Nonprofits • Whether organizations prepare their own or use CPAs to prepare their 990s, the potential for e-filing is high. • 90% of organizations had access to the Internet in 2002. (We expect the percentage is even higher now.) (Urban Inst. 2002 e-filing survey) • Nearly 3 out of 4 nonprofits use outside preparers (almost always CPAs) to prepare their 990s. CCH, the largest tax prep software vendor will be efiling 990s in Jan. 2005 & Intuit will be in Jan. 2006. • 73% of financial executives said they would be very likely or somewhat likely to electronically file their Form 990. (Urban Institute 2002 e-filing survey)

7. Building the Infrastructure for Nationwide E-Filing Success most likely through coordinated efforts from: • NCCS & GuideStar • State Charity Offices • Internal Revenue Service • Software Developers

8. Models of State Cooperation & Coordination in Other Areas • Law enforcement generally • Uniform codes (e.g., Uniform Commercial Code) • IRS 1040 program with states • IRS Form 990 is a fed-state partnership

9. Benefits to State Charity Offices • Less paperwork & paper • Allow staff to focus on enforcement & other goals • Electronic infrastructure already being built by IRS, GuideStar, NASCOnet & NCCS – big startup savings over doing it ourselves • Simplify process & reduce registration burden for charities • Potential cost-savings as system widely-used • Expect quick adoption: 35% of individual 1040s now efiled. 90+% of organizations have web access.

10. II. How E-Filing and XML Work

11. The Flow of Information Charity or Tax Preparer Using CCH, Intuit, NCCS Online tax prep. systems IRS 2005 – Fed forms only; Jan. 2006 – Fed-State Retrieval State Charity Offices XML is the common language for transmitting the information NCCS State forms 2005

12. Four Major Participants • The IRS • GuideStar & NCCS are developing the NASCOnet XML SuperSchema with help from state charity offices. • Software developers (including NCCS) will be transmitting information collected through their tax prep programs using XML. • Many State Charity Offices will be: • Building systems for their charities to e-file, and • Accepting information directly from the IRS

13. The IRS • 990-EZ & full 990 can be e-filed today • Fed-State Retrieval System • Pass through state return information in XML SuperSchema format • Jan. 2006 live • Web services to automate uploading and downloading of files from the IRS • 2005 or Jan. 2006

14. NCCS & GuideStar • Develop resources for software developers & states • NASCOnet XML SuperSchema that combines the Unified Registration Statement and state-specific forms for both initial registration and renewal • Consistent with IRS XML schema • Business Rules for each state • NCCS: Implement Online State Systems • Integrated with Form990.org IRS e-filing system • Driven by NascoNet XML SuperSchema • States & other software developers • Use XML SuperSchema to develop new systems for charities and state charity offices

15. State Charity Offices • XML Schema Development • Review XML Schema for your state’s forms • System Implementation • Accept IRS & State returns (in XML format) passed through the IRS Fed-State Retrieval System • Accept State returns filed directly via NCCS intermediary, own websites, or other systems • Requirements & Recommendations • Modify internal databases & programs to accept XML • Accept electronic payments • Accept electronic signatures (preferable) or vouchers • Align filing deadlines with the IRS 990

16. Software Developers • Add module for putting data into IRS and NASCOnet XML formats • Get certified with the IRS • CCH – Jan. 2005 – the largest 990 tax prep. developer • Intuit – Jan. 2006 – the 2nd largest

17. III.The NASCOnet XML SuperSchema A collaboration between GuideStar, NCCS, and NASCO

18. NASCOnet XML SuperSchema • XML provides a “shared language” for transmitting information that can be spoken by any operating system or database. • Windows, Linux, mainframe systems • Oracle, Informix, MS SQL Server, MS Access databases • The IRS developed the schema for the 990s • GuideStar & NCCS are developing a complementary “NASCOnet XML SuperSchema for state filing that the IRS will use in its Fed-State Retrieval System • Includes the Unified Registration Statement (URS) & all state-specific charity registration & renewal forms • The schema is in the public domain: Software developers & others can use it for free.

19. SuperSchema Categories

20. State Schema Review Report Sample report that NCCS & State Charity Officials will use in XML review process

22. IV. Implementation ofState Charity Office Registration Systems

23. State E-Filing Implementation • The IRS Fed-State system (1/2006 startup) will use the NASCOnet SuperSchema to accept & transmit data filed through tax prep software & online systems. • Most commercial developers market their desktop applications to professional preparers & generally do NOT support state forms. The SuperSchema should make it much easier & less costly for them to start supporting state forms. • The NCCS/NASCOnet online system is free to all & will integrate 990, URS, & forms for all participating states.

24. The 990 Online • The NCCS 990 Online system shows the “look and feel” of how a web-based system looks to a nonprofit organization or professional tax preparer • Sample page (from page 6 of the 990) for collecting list of states where a nonprofit files • System can be used for both e-filing or for printing completed forms. • More than 1,500 fields. • See the 990 Walk-Through presentation for more details.

29. NASCOnet Online: How It Will Work • Currently, 98+% of charities register in only one state • Multi-state filers are asked only those questions that are in at least one of their states. • No duplicate questions • No unnecessary questions Build Programs, not Paperwork!

30. NASCOnet Online: How It Will Work (2) • Four ways for the multi-state filers to complete their forms: • Use the URS plus any additional state-specific questions • Use one state’s form as the primary form and add on non-duplicative questions from other states • Order the questions by category (professional fundraising; responsible persons; etc. • Complete forms for each state separately with answers populated from 990 & other previous forms.

31. The NCCS Desktop 990: A Model for Integrated 990 & State E-Filing • Windows application completed by NCCS in 2002 • Used in Pennsylvania and Colorado • Shows logic of system that integrates completion of the 990 with the URS and state-specific forms. • The Desktop990 will be phased out in 2005 as web-based state systems are finished.