Should you request an extension of time to file your organization’s Form 990 even if you are able to file by the due date?
People worry that requesting an extension of time to file reflects poorly on their organization, or that it might cause an IRS audit. Neither of these things is true.
Beginning in January 2018, the IRS has a new method of handling Form 990 series returns that it believes are incomplete. The IRS rejects electronically filed returns that are incomplete. An incomplete paper return is sent back to the organization with a demand for corrective action within 10 days.
Most smaller tax-exempt organizations do not have the resources to respond properly to such a demand from the IRS within 10 days. If the rejected return was filed close to the due date, the organization may incur a daily delinquency penalty until it responds in a way that satisfies the IRS.
Buy yourself some time by filing Form 8868 to request an extension even though you plan to file on time. As long as a valid extension is in place, no penalties will accrue while the organization is correcting its errors and responding to the IRS.