Discussion:Is extension nullified if taxpayer misses extended due date?

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Discussion Forum Index --> Basic Tax Questions --> Is extension nullified if taxpayer misses extended due date?


Discussion Forum Index --> Tax Questions --> Is extension nullified if taxpayer misses extended due date?

Wiles (talk|edits) said:

29 October 2010
If a 1040 taxpayer files an extension and misses the 10/15 deadline, does their extension get nullified? Does the late payment penalty get calculated at 5% starting 4/15?

Or is their extension still honored and the 5% late penalty only starts after 10/15?

Daswapr (talk|edits) said:

29 October 2010
An extension of time to file is NOT an extension of time to pay. You will owe interest on any tax not paid by the regular due date of your return. This is April 15, 2010, for a 2009 calendar year return. (See Instructions for form 4686) - http://www.irs.gov/pub/irs-pdf/f4868.pdf

DaveFogel (talk|edits) said:

29 October 2010
However, for purposes of the late FILING penalty (which may be what you're referring to), the extension still applies. For example, if the taxpayer's due date is 10/15 and files on 10/28, the late filing penalty is 5% of the amount due (i.e., it is imposed for only one month). The late PAYMENT penalty is 3.5% (0.5% per month for 7 months)

Wiles (talk|edits) said:

29 October 2010
Yes, I meant to say late FILING penalty. The 5% per month penalty. Thank you, Dave.

For some reason, I have always been under the impression that if you missed the extended due date, then the assessment of the 5% late FILING penalty goes back and starts at the original due date, i.e. you immediately get the maximum 25% (5 month) penalty.

CATaxAtty (talk|edits) said:

29 October 2010
Dave - this will probably be correct 90-99% of the time. Just as a bit of trivia - the Service can actually disregard the extension altogether if the tax was substantially underestimated. In such cases, 6651(a)(1) (the failure to file penalty) can apply even when an extension has been filed. The logic here is that because the taxpayer failed to reasonably estimate the tax owed, a proper extension was never filed. Therefore the return is simply, late.


See i.e. Crocker v. Commissioner, 92 TC 899 (1989).

R2 (talk|edits) said:

29 October 2010
Wiles, you can protect your client from the retroactive assesment of the late filing penalty by including a good faith estimate of the tax liability with the extension request.

DaveFogel (talk|edits) said:

29 October 2010
CATaxAtty, you are raising a different issue, which is whether the taxpayer made a proper estimate of the tax on the Form 4868. The IRS may disallow the extension if the taxpayer made an estimate of tax on that form that was too low, as indicated in the Crocker case you cited.

However, after the Crocker case, the Tax Court decided Harrison v. Commissioner, T.C. Memo. 1998-417. In this case, the taxpayer had a history of filing extension forms with improperly-low estimates of tax (they reported only $11,810 in tax on the extension forms for the years 1986 through 1992 while their returns ended up reporting tax liabilities totaling $596,462). For the years in issue (1988 and 1989), the Harrisons’ accountants prepared Forms 4868, and determined the estimates of tax to be reported thereon. For these years, the extension forms similarly had low tax estimates. The Harrisons argued that since they relied on their accountants to correctly prepare the extension forms, they should be relieved of the delinquency penalties based on reasonable cause, and the Tax Court agreed.

After the Harrison case came out, I have not seen a single case where the IRS argued that the extension was invalid due to an improper estimate on the extension form.

Death&Taxes (talk|edits) said:

29 October 2010
Thanks for that great history, Dave!

As I recall, in 1988-89 and up until ????, an extension showing a balance due had to be accompanied by a check, and this often put the preparer between a rock and hard place. Client would not or could not pay, leaving preparer in a quandary. I find it hard to believe the decision in Harrison, though I would admit the issues were very complicated.

DaveFogel (talk|edits) said:

29 October 2010
A little bit more history. Form 4868 for tax years through 1992 required a taxpayer to pay the unpaid balance of the projected tax liability with the form in order to get the 4-month extension. However, starting with the 1993 Form 4868, this unpaid balance didn't have to be paid in order to get the extension. I haven't been able to find any IRS regulation, ruling, or announcement that made this change. However, it appears that due to this change, after 1992, the entire issue about invalid extensions due to a low estimate of tax on this form became moot (the Harrison case involved the years 1988 and 1989).

R2 (talk|edits) said:

29 October 2010
In the Harrison case, the taxpayer hired a CPA to compute the estimated tax liability. The court found reasonable cause since the CPA made a good faith estimate of the tax liability.

The Service will routinely assess the 6651(a)(1) penalty when the Form 4868 shows a tax liability of zero (sometimes indicative of a bad faith estimate). I have seen no changes in the Service’s position on this issue in recent years.

CATaxAtty (talk|edits) said:

30 October 2010
Dave - that's interesting. You know, I was in the Tax Court the other day in San Francisco and a similar case was going on (a case about penalties). Anyway, the taxpayer seemed a little hapless and mixed-up so I finally got up and sort mozied on over to volunteer my help.

Taxpayer said he filed on extension. So I asked the chief counsel attorney if they were disregarding it (since 6651(a)(1) was being asserted). Both OCC attorneys had no clue that an extension could be disregarded in this manner. So perhaps they really aren't doing this anymore. Or perhaps it's like R2 says, only done in egregious cases.

CATaxAtty (talk|edits) said:

30 October 2010
PS - you know, my old boss was actually on the same kick once and made me dig through all of the old extension forms (he swore up and down that there had been some change in the rules on this).


Anyway, after going back through it all, I think we concluded that the language had been a bit tougher in the past (I believe it said something like you MUST fill it out properly / pay all that's due to get the extension). But at the end of the day the rules hadn't really changed, despite the form.


I'm looking at the current form now and it says "To get the extra time you must: 1. Properly estimate your 2009 tax liability using the information available to you..." Form 7004 has similar language, which seems reasonable to me.

DZCPA (talk|edits) said:

30 October 2010
I had a few extensions rejected when the client said "I think I will not owe" and the clients ended up owing over $10,000. They were assesed late filing penalties as of April 15th. Clients decided not to fight it and paid up.

DaveFogel (talk|edits) said:

30 October 2010
As I said, Form 4868 was changed starting with the 1993 year. Compare the 1992 form which states, "To get this extension, you MUST pay in full the balance due with this form" to the 1993 form which omits this language. The instructions for 1993 and after say:

"If you find you cannot pay the amount shown on line 6, you can still get the extension. But you should pay as much as you can to limit the amount of interest you will owe. Also, you may be charged the late payment penalty on the unpaid tax from the regular due date of your return."

As a result, there is really no motive for filing Form 4868 with an improperly low estimate of the tax liability.

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