Some tax-exempt groups won’t be able to e-file until March

The Internal Revenue Service said Thursday that a limited number of tax-exempt organizations won’t be able to electronically file their income tax returns until the middle of March due to technology upgrades.

The affected forms are Form 990-T, Exempt Organization Business Income Tax Return, and Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations, and they can’t be e-filed until March 17, 2024. E-filing of those forms, including returns on extension, with due dates from Jan. 15, 2024, to March 15, 2024, is unavailable for right now. However, only about 2,000 Forms 990-T and 1120-POL are typically e-filed during this time period, and most of those are the Form 990-T. Taxpayers with due dates on April 15, 2024, and later will be able to e-file Forms 990-T and Forms 1120-POL on time. 

The IRS advised tax-exempt entities that need to file in this timeframe to follow these instructions:

Organizations subject to unrelated business income tax are required by law to file Form 990-T electronically. Any balance due must be submitted with Form 8868 to avoid interest and penalties. Beginning March 17, 2024, organizations will be able to timely e-file Form 990-T by the extended due date.

If an affected organization doesn’t submit an extension in a timely way, or if the extended due date falls within the period from Jan. 15, 2024, to March 15, 2024, and the organization doesn’t e-file its Form 990-T on time, it should include with its late e-filed Form 990-T a request that any penalties for late filing not be imposed due to reasonable cause. The reasonable cause request should mention that e‑filing wasn’t available as of the due date of the return.

Organizations filing a Form 1120-POL that’s due from Jan. 15, 2024, to March 15, 2024 (including returns on extension) can file on paper. An organization that wants to e-file a return with an original due date during that time period can ask for an automatic six-month extension of time to file Form 1120-POL by submitting Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, and paying the full balance due with that form to avoid interest and penalties. Only a handful of such groups usually e-file during the affected time period, the IRS noted.

The IRS has experienced delays in processing paper tax returns, and it’s ironic in some ways that the IRS is forced to ask for groups to file their tax returns on paper, especially political tax-exempt organizations during an election year. Earlier this month, National Taxpayer Advocate Erin Collins pointed out in her annual report to Congress that paper processing is still a major problem for the IRS. She has referred to paper processing as the “IRS’s Kryptonite.”

The e-file delay won’t affect the ability of government entities and Indian tribal governments that aren’t subject to unrelated business income tax to timely file Form 990-T to make an elective payment election for Clean Energy Tax Credits. EPE is available for tax years starting in 2023, so the returns won’t be due until after March 17.
 
In addition, under the law, an entity can’t receive the elective payment amount before the original due date of the return. Filing before the original due date for the return won’t shorten the time for payment. While government entities and Indian tribal governments that aren’t subject to UBIT aren’t subject to the electronic filing mandate, the IRS is encouraging all taxpayers to e-file. The Elective Pay and Transferability FAQs online provide more information on EPE for clean energy tax credits.