Congress Allows Single Six Month Extension of Form 990 Series

The week before last, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 was approved quickly by both the House and the Senate and immediately signed into law by President Obama. The primary purpose of this stop-gap bill was to avoid a lapse in highway and transportation spending. The law contains several substantive tax provisions and, somewhat surprisingly, numerous provisions affecting the due dates of tax returns. The most widely-discussed of these are a change of the due date of partnership returns from April 15 to March 15 and a mirror-image change of the due date of C corporation returns from March 15 to April 15, both of which go into effect for tax years beginning after December 31, 2015.

One of the other changes is that, for tax years beginning after December 31, 2015, it will be possible for filers of the Form 990 series (which includes, among others, Forms 990, 990-EZ, and 990-PF) to file for a six-month automatic extension. (This is in Section 2006(b)(4) of the statute.) This development is very welcome. Currently, filers can obtain an automatic three-month extension, but then have to file a second extension request for three additional months. This second request is technically not automatic, but in our experience it virtually is, even if the stated reason is nothing more than “more time is needed.” For all intents and purposes, the second extension has to be paper-filed if it is prepared by an outside accounting firm. (It can be e-filed, but only if the client signs a form authorizing the firm to e-file it, a time-consuming step that makes it simpler to paper-file it.)

IRS processing of the second extension requests seems like a pointless consumption of IRS resources, and far too frequently results in unjustified penalty notices. For example, their system does not always recognize when the 15th of a month falls on a weekend or holiday, resulting in an extension of the deadline for a day or two beyond the 15th. These unjustified penalty assessments create unnecessary stress for exempt organizations and require time and expense to abate. In short, as a firm that prepares hundreds of 990s and 990-PFs, we spend an inordinate amount of time preparing second extension requests and dealing with their complications, a process that we feel adds no intrinsic value to our clients and should be unnecessary.

Unfortunately, it will take a while for this change to go into effect. With the exception of short year returns, the first tax year that will be governed by the new rule is calendar 2016, so the first round of second extension requests that will disappear will be the ones that would otherwise be due on August 15, 2017. My colleagues and I will not be wearing black armbands to mourn their departure.

E. Drew Cheney Posted By
E. Drew Cheney