In 2006, Congress passed the Pension Protection Act. And it included an idea that seemed simple at the time. The idea was that the IRS should know how many tax-exempt organizations existed in the country. The result (part of the Pension Act) is known as the 990 e-Postcard Notification Law, which became effective this past July. It was aimed at all those small (sometimes very small) organizations that generate less than $5,000 each year, never have had to file for tax-exempt status and don’t have to file a Form 990 annually.
To keep it simple, the law said the e-Postcard had to be filed online. In fact, there is no other way to make the filing. There is no paper equivalent of the e-Postcard–everything about it is supposed to be electronic, including the IRS’s replies.
And so begin the e-Postcard’s troubles. First, a small group such as a hunt club probably doesn’t have a computer, much less a staff. Sure, it can go to the local library, but according to the IRS each filer has to have an e-mail address. The hunt club doesn’t have an address, but one of its members might, and his address (and computer) will suffice–until he quits or dies. Second, each filing organization must enter an EIN (Employer Identification Number) on the e-Postcard site to begin the process. But very few of these groups have an EIN because they don’t employ anybody.
Just to see how it worked, I logged in to the IRS site to test the system. I was ready to make an imaginary filing (without clicking on “send”) but was stopped dead in my tracks on the first page. I was asked for an EIN which I didn’t have and didn’t know how to get one quickly. I imagined that my imaginary charity had only me to handle this task. This leads to a fundamental problem and an odd result.
The problem, of course, is that without an EIN the group cannot comply with the law. An entity without an EIN is, in effect, wrapped in a Harry Potter invisibility cloak as far as the IRS is concerned. Without an EIN, the IRS has no record of the group’s existence. If that is so, what is the IRS supposed to do with the e-Postcard it might get from our little hunt club?
It wouldn’t help to compare the club’s information against a master list of tax-exempts because the club isn’t on the master list. It could start a new list of the e-Postcard filers, and it probably will, but that seems at odds with one of the statute’s purposes, which was to clean up and straighten out the IRS’s records, not to create more records.
Our little hunt club could easily just not file an e-Postcard this year or any other year. It could ignore the law. Should it?
Think about it. If you’re invisible to the IRS, what possible negative consequence, either legal or moral, might follow from not letting the IRS know you exist? You won’t lose your tax exemption because the government doesn’t know you exist. Besides, even if the IRS somehow found you out, another provision of the Tax Code gives you an exemption regardless of your failure to file. You won’t have to file the e-Postcard next year or any subsequent year.
You won’t have to get an EIN number or find out how to get its equivalent. You won’t need Internet access or an e-mail address. You won’t have to pay anybody to do those things for you. You won’t be receiving replies or reminders from the IRS. And, because there is no record of misuse of assets or tax status among groups as small as your hunt club, there is no public purpose frustrated by a failure to file.
A first response to this accurate, but perhaps cynical, analysis could be: Just because you won’t get caught is no reason to flout the law. I grant you that. However, another adage applies equally well: If it ain’t broke, don’t fix it.