1. NASCOnet & State E-Filing January 2005

2. This Presentation I.Overview II.How E-Filing and XML Work III.NASCOnet XML SuperSchema IV.Implementation of State Charity Office Registration System V.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/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 NCCS State forms 2005 XML is the common language for transmitting the information

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 2 nd 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 of State 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.

56. State Charity Office Tasks When E-Filing is Implemented Download XML data –From the IRS –From the NCCS online system &/or other internal or external systems Approve returns & transmit error messages Add XML data to existing databases View “pseudo-returns” with all fields or PDF versions The following screens shows the interface used by PA & CO State Charity Office staff.

63. The IRS Interface for State Charity Officials The current system requires only a browser and is presented in the following slides. The “web services” that the IRS will unveil in either 2005 or Jan. 2006 will fully automate the process

74. V. Timeline & Costs SuperSchema, Business Rules, etc. –SuperSchema structure complete– Jan. 2005 990, URS, & 7 states: PA, CO, NY, CA, NH, MS, & SC –Remaining states – June 2005 –GuideStar Dept. of Commerce grant covers all costs. Implementation of State Charity Office Systems –NCCS 990 Online – e-file 990 & 990-EZs with the IRS now –Online E-Filing System available for PA in Feb. 2005, integrates with the 990 Online –One state per month after that. –Estimated $10,000 - $20,000 to cover NCCS costs.