The IRS has published a draft Form 8868, Application for Automatic Extension of Time to File an Exempt Organization Return, reflecting an automatic six-month extension of time to file Form 990-series returns beginning with tax year 2016. This six-month extension replaces the previous three-month automatic extension that could be extended for an additional three months upon a subsequent written request.

In its 2015 Report of Recommendations, published in June 2015, the IRS Advisory Committee on Tax Exempt and Government Entities (ACT) provided detailed recommendations to the IRS on tax guidance and administration in the areas of tax-exempt organizations, government entities, Indian tribal governments, tax-exempt bonds and employee plans. Among its recommendations, ACT urged the IRS to support a congressional mandate to require electronic filing of Form 990-series returns and to encourage e-filing by giving organizations that choose to e-file an automatic six-month extension of time to file.

Shortly thereafter, in July 2015, President Obama signed into law a three-month highway funding extension bill (H.R. 3236) that modified the filing dates for several commonly used tax returns. Pertinent to exempt organizations, the law provided a maximum six-month automatic extension for Form 990 information returns. (See Tax Alert 2015-1527.)

In March 2016, the IRS announced that the Instructions for Form 8868 were being revised "effective immediately" to add a new paragraph cautioning exempt organizations that failure to file requisite Form 990-series returns for three consecutive years will lead to revocation of tax-exempt status to the original filing date.

The draft Form 8868 and its instructions reflect the automatic six-month filing extension and inform exempt organizations that exempt status will be revoked if they fail to file required Form 990-series information returns for three consecutive years. To encourage tax-exempt organizations to e-file the extension request, the Form 8868 as presently drafted no longer requires a signature with its submission.

Implications

The draft Form 8868 offers a welcome change for tax-exempt organizations seeking additional time to file a Form 990-series return, beginning for tax year 2016. Offering an automatic six-month extension on a Form 990-series return eliminates the need for tax-exempt organizations to file subsequent requests for additional extensions. Previously, tax-exempt organizations received an automatic three-month extension, without showing cause, by filing Form 8868. A second three-month extension was available by filing a second Form 8868 and explaining why the organization had reasonable cause for needing the additional three months. The draft Form 8868 does not affect tax-exempt organizations seeking additional time to file Form 990-T, Exempt Organization Business Income Tax Return. They will continue to receive an automatic six-month extension when they file Form 8868.

If the draft Form 8868 is finalized in its present form, organizations extending the time to file Form 8870, Information Return for Transfers Associated with Certain Personal Benefit Contracts, will not be able to e-file the Form 8868. Instead, the Form 8868 filed for Form 8870 must be sent to the IRS in paper format. Further, tax-exempt organizations will still not be able to use Form 8868 to extend the due date of a Form 990-N (e-postcard).

The draft Form 8868 is expected to be finalized by the IRS on January 1, 2017, and the changes set forth in the form and the instructions will apply to all Forms 8868 filed after that date. Tax-exempt organizations wishing to comment on the draft Form 8868 and associated instructions may submit their comments to the IRS on the "Comment on Tax Forms and Publications" page on IRS.gov.

Please contact your EY professional for further information.

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RELATED RESOURCES

— For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg

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