Can’t Finish Returns by October 15 Deadline?
Originally published in the Cedar Street Times
October 5, 2012
If you placed your 2011 personal tax returns on extension, you have 10 days left to complete the returns and get them filed. This is especially important if you did not withhold enough tax or make enough estimated tax payments during the year to cover your tax liability that was technically due on April 17. Penalties are assessed based on the unpaid balance of tax that was due on that date. There are several penalties assessed, but the hefty penalty is the late filing penalty which equates to five percent of your unpaid tax as of April 17 for each month or part of a month the return is late (capped at 25 percent).
In the past, I have had problematic situations where a client did not receive tax documents until after October 15. This is sometimes seen when a client is invested in a partnership or has an interest in an S-Corporation or LLC and that entity is filing their returns late – causing all the others to be late as well. There are even situations when other entities are filing timely and it can cause you to be late. An example of this would be if you were a beneficiary of an irrevocable trust. These types of trusts generally have the same due dates that your personal returns do – April 15, with a six month extension to October 15. What if the trust is completed at the end of the day on October 15? Will the beneficiary be able to get their K-1 tax document and provide to their accountant to finish before midnight!! Maybe not!
So what do you do if you still cannot file by October 15? Is there any hope? There are some specific exceptions for military service members and taxpayers working abroad, but if you do not qualify for those exceptions, what then? One option would be to wait until the information is received and then file the return requesting penalty relief for reasonable cause. This is a tough row to hoe in actuality, because the IRS places a high degree of responsibility on the taxpayer: I can almost guarantee you that what you feel is reasonable will not be the same as what the IRS feels is reasonable! You will be categorized as delinquent from the outset, and then you will start on the defensive.
A better solution in many cases would be to go ahead and file a tax return with the information available and your best estimate of any missing information. (There are provisions in the code that allow for estimates under certain circumstances.) A statement should be included with the return explaining the situation and the efforts made to obtain the information. You should also state the intent to amend the return if materially different from the actual information when it is available. This would prevent a late filing penalty from being assessed, and you would be categorized as timely filed unless the return is challenged by audit.
Prior articles are republished on my website at www.tlongcpa.com/blog.
IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.