IRS Announces Two Month Suspension of IRS Modernized e-File Operations for 990 Filers

In order to facilitate systems and programming changes, the IRS issued Notice 2012-4 to notify tax-exempt organizations that use of the IRS Modernized e-file (MEF) system will be suspended from January 1, 2012 through February 29, 2012 for electronic filing of Forms 990, 990-EZ, 990-PF and 1120-POL information returns. The IRS is suspending the availability of the system to implement changes to IRS programs and systems for the 2011 tax year. The 990-N e-postcard filing system will not be affected by the temporary suspension of the MEF system.

To minimize the impact on affected organizations, the IRS has granted an extension of time to file to March 30, 2012 to organizations whose original due date or first three-month extended due date for filing tax returns is January 17, 2012 or February 15, 2012. This impacts organizations with August 31, 2011, or September 30, 2011 year ends since their original due dates would be January 17, 2012 and February 15, 2012, respectively.  It also impacts organizations with May 31, 2011 and June 30, 2011 year ends as their first three-month extended due date would be January 17, 2012 and February 15, 2012, respectively. 

The additional extension of time to file by March 30, 2012 is automatic.  Therefore, it is not necessary to file a formal request for extension on Form 8868, Application for Extension of Time to File an Exempt Organization Return.  However, if an affected organization with an original due date or first three-month extended due date that falls during the suspension period wishes to extend the filing of their tax return beyond March 30, 2012, Form 8868 must be filed by the original due date or first three month extended due date (i.e., January 17, 2012 or February 15, 2012), not March 30, 2012.  These extensions should be mailed to the IRS, preferably by certified mail for proof of timely filing, as there is no requirement to electronically file an extension.

An affected organization with a second extended filing due date that falls during this suspension period (i.e.; an organization with a February 28, 2011 or March 31, 2011 year end) is not eligible for the additional extension of time to file by March 30, 2012.  However, if the organization does not file their tax return by their extended due date but does file the return by March 30, 2012, the IRS will consider them to have “reasonable cause” for the late filing and will not subject them to a late filing penalty.  While it is not necessary to file a Reasonable Cause Statement to take advantage of the penalty relief, the IRS acknowledges that a system-generated penalty notice for late filing will likely be mailed if a Reasonable Cause Statement is not attached to the tax return. Therefore, the best practice would be to attach a Reasonable Cause Statement if the organization intends to take advantage of this relief.   Notice 2012-4 provides a sample of a Reasonable Cause Statement letter.  It is replicated at the end of this article.  In the event that an organization receives a penalty notice for late filing, they should immediately call the telephone number listed on the penalty notice.

As an alternative, affected organizations that are not required to file electronically, may file a paper return at any time before March 30, 2012.  Electronic filing is typically required for exempt organizations with $10 million or more in total assets that file at least 250 returns in a calendar year, including income, excise, employment tax and information returns (i.e.; Form W-2 and Form 1099). Private foundations and non-exempt charitable trusts are required to file Forms 990-PF electronically regardless of their asset size, if they file at least 250 returns annually.  Affected organizations who have already received their full six-month extension and that would be required to file electronically will also be allowed to file by paper by their extended due date.  However, these organizations may receive a system-generated form asking for an explanation of why they did not file electronically.  The IRS has indicated that it will be sufficient to respond with the statement “Paper Filing Pursuant to Notice 2012-4.”

As a reminder, an extension of time to file is not an extension of time to pay any tax liabilities that may be due for the year.  Notice 2012-4 does not provide an extension to March 30, 2012 to pay such tax liabilities.  In such cases where the organization has a tax liability that would be due on either January 17, 2012 or February 15, 2012, they must make an estimated tax payment or make the payment with a filed tax return or extension by the respective due date.

To summarize, an organization that is not required to electronically file that has an original due date or first three-month extended due date that falls during the suspension period may either electronically file between March 1, 2012 and March 30, 2012 or paper file at any time prior to March 30, 2012.  An organization that is not required to electronically file that has a final extended due date that falls during the suspension period may either electronically file between March 1, 2012 and March 30, 2012 or paper file at any time prior to the extended due date.  A Reasonable Cause Statement should be attached to the return when electronically filing after the final extended due date.  An organization that is required to electronically file with an original due date or a first three-month extended due date that falls during the suspension period must wait to electronically file between March 1, 2012 and March 30, 2012. They may not paper file. An organization that is required to electronically file that has a final extended due date that falls during the suspension period may either electronically file between March 1, 2012 and March 30, 2012 or paper file at any time prior to the extended due date.  It is not necessary to file an extension to take advantage of this extended filing period. However, an extension should be filed prior to the original due date or first three-month due date if the tax return will not be filed by March 30, 2012.  In addition, all tax payments are required to be made prior to the original due date or first three-month due date, not the March 30, 2012 due date.

Reasonable Cause Statement

This return is being filed between March 1, 2012, and March 30, 2012, as directed by the IRS in Notice 2012-4, because electronic filing was not available January 1, 2012 through February 29, 2012. We request that penalties be waived because it would be inequitable to impose a penalty on us due to the unusual circumstances requiring us to delay the filing of this return.

In this same notice, the IRS issued notice to tax-exempt hospital organizations that, with the exception of lines 1 through 7, Form 990, Schedule H, Part V, Section B (Part V.B) is no longer optional, beginning with the 2011 tax year.

Please contact Feeley & Driscoll's Boston Accounting team by Email or call us at 1 (888) 875-9770.

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