IRS announces extension of time for elective payment election on Form 990-T

In brief

What happened?

The IRS on October 11 issued Rev. Proc. 2024-39 granting some tax-exempt organizations making an elective payment election a six-month automatic extension of time to file an original or superseding Form 990-T, Exempt Organization Business Income Tax Return, which they use to report unrelated business income. The relief applies to applicable entities that are filing a Form 990-T to make an elective payment election for a tax year ending on any day from December 31, 2023 through November 30, 2024.   

In addition to the six-month automatic extension of time to file, Rev. Proc. 2024-39 temporarily waives the requirement to make an elective payment election on an electronically filed Form 990-T, allowing applicable entities that otherwise would be required to electronically file Form 990-T to make an elective payment election on a paper-filed Form 990-T if they follow certain procedural requirements.  

Rev. Proc. 2024-39 also provides guidance for an applicable entity that receives a notice that its election was ineffective because the return on which it was made was filed after the due date of the return and on or before the automatically extended due date. 

Why is it relevant?

The relief provided by Rev. Proc. 2024-39 means that applicable entities that were required to but did not file a timely extension on Form 8868, Application for Extension of Time to File an Exempt Organization Return, will be granted a six-month automatic extension of time to file a Form 990-T for purposes of making an elective payment election.  

Action to consider

A tax-exempt organization making an elective payment election needs to ensure that it strictly complies with the applicable procedural requirements under Section 6417. While the relief provided for in Rev. Proc. 2024-39 is welcome, it is important for tax-exempt organizations to understand that the relief is only temporary. In addition, it would be prudent for a tax-exempt organization making an elective pay election for a tax year that ends during the relief period (i.e., on any day between, and including, December 31, 2023, through November 30, 2024) to file an extension to extend the due date of its Form 990-T (if possible) rather than rely on Rev. Proc. 2024-39.

Automatic six-month extension 

An applicable entity is eligible for the automatic six-month extension if it (1) had a filing obligation, (2) did not otherwise receive an extension of time to file a return, (3) is filing Form 990-T to make an elective payment for a tax year ending on any day between, and including, December 31, 2023 through November 30, 2024, regardless of whether the applicable entity previously filed a return for that tax year, and (4) meets all other requirements for making an elective payment election, including prefiling registration. While applicable entities are not required to file a Form 8868 to receive the extension, they may choose to do so if their original due date has not passed to prevent an erroneous rejection. 

This automatic six-month extension of time to file an original or superseding Form 990-T means that an applicable entity with a tax year ending on December 31, 2023 may timely file a Form 990-T to make an elective payment election on or before November 15, 2024. Similarly, an applicable entity with a tax year ending on November 30, 2024 may timely file a Form 990-T to make an elective payment election on or before October 15, 2025.  

Procedure for entities notified of ineffective election  

An applicable entity that makes an elective payment election on From 990-T filed on a date after the original due date through the extended due date and receives a letter from the IRS that the election is ineffective because the return was filed late should obtain assistance by calling IRS Tax Exempt and Government Entities Customer Account Services at 877-829-5500 and reference that the applicable entity is entitled to an automatic extension of time to file under Rev. Proc. 2024-39.