Travis H. Long, CPA, Inc. Blog

Originally Published in the Pacific Grove Hometown Bulletin

April 6, 2011

Imagine opening a letter from the IRS assessing you an $18,000 penalty because they claim you did not file your extension on time!  I once worked with a client that was faced with this exact problem.  The irritating part is that an extension request is an arguably meaningless filing since it is automatically granted if requested. Nonetheless, the IRS takes it seriously.

So with April 18^th fast approaching (taxes are not due on the 15^th due to the federal observation of the signing of the Compensated Emancipation Act by Abraham Lincoln in 1862), how can you protect yourself?  If you are filing your own extension for your personal tax returns with the IRS use Form 4868.  Be sure to get some kind of proof of delivery and make a copy of the extension.  Even with delivery confirmation it is difficult to prove what you sent.  The best way is to e-file the extension through home-use tax software or by using a tax professional that e-files and obtains an electronic confirmation.  What about California?  In the midst of a tiresome sea of nonconformity with the IRS, I applaud California for this one act – you need not file a form to be granted an automatic extension! After you have filed your federal extension you have until October 15, 2011 (six months) to file your returns.

BEWARE!!  Just because you file an extension does not grant you additional time to pay!  The tax you calculate on the return you are going to prepare and file by October is still due by April 18.  So if you think you might not have enough tax withheld, you need to make some good estimates and send in some checks.  You may want to hire a tax professional to help with this calculation.  You can send the federal check with Form 4868.  For California, you can use FTB Form 3519 to send with your check.  There are also electronic options for paying both of these.

If you do not pay your tax or file your return on time, interest and penalties are calculated based on any amount of tax you come up short. Interest varies with market changes (currently 4 percent a year for the IRS). IRS late payment penalties are ½ percent of the balance each month (up to 25 percent).  If you fail to timely file, the IRS penalties are 5 percent of the balance each month (up to 25 percent).  You may also incur underpayment of estimated tax penalties depending on your circumstances.  California interest and penalties are similar or higher.

Oh, and remember my client with the $18,000 penalty – fortunately we were able to successfully petition to get the penalty waived!

Travis H. Long, CPA is located at 706-B Forest Avenue, Pacific Grove, CA.  Travis can be reached at 831-333-1041.