Speaking of Extensions

[JohnH]

Just prepared my first one today.

There will be many more in the coming weeks.

It's always good to get that first one out of the way - it gets the ball rolling and makes the others much easier.

[FreedomTaxed]

I almost had one the other day, but they grew recalcitrant once I pointed out that filing the extension didn't relieve them of the need to make estimated payments in case they owed taxes for 2013. Is there a lot of blind-filing of extensions done? I'm just trying to perform due diligence, and I didn't actually say that I wouldn't file their extension for them.

[JohnH]

They aren't required to make a payment in order for the extension to be valid, regardless of the amount owed. They will pay interest at about 5% APR plus a FTP penalty which equates to 6% APR, so the underpayment will cost them roughly 1% per month on the unpaid balance. But they will escape the 5% per month FTF penalty, which is the main reason for filing the extension.

The most important thing is that the estimated balance due be as accurate as possible, regardless of whether or not it is paid - that is the only way the extension can be invalidated after the fact. Obviously it's better to pay the estimated balance due if they can, but it isn't required in order for the extension to serve its main purpose.

As a matter of fact, the one I prepared today had an $800 balance due and they are not making any payment with it. But they still escape the 5% FTF penalty completely.

[Catherine]

Massachusetts can (and sometimes does) reject an extension, after-the-fact, if they decide it wasn't valid for lack of payment at the time it was filed. So they add on more penalties and more interest... and I find it is being used more, as an excuse to steal more money from taxpayers.

[Kea]

Catherine is correct. This always happens to my MA (NR) client. He always gets his K1 late. He tries to estimate his income when filing the extension but it's always wrong. Then he gets hit with the extra bill. Last year he tried to really over-estimate so that he would pay too much. Nope, still too low.

[JohnH]

Yes, states have varied and different rules. NC, for example, imposes a flat 10% penalty on the underpayment, although they still don't invalidate the extension. But the IRS is very lenient when it comes to extensions and underpayments. That's important information when the client's back is against the wall.

[Carolbeck]

Massachusetts can (and sometimes does) reject an extension, after-the-fact, if they decide it wasn't valid for lack of payment at the time it was filed. So they add on more penalties and more interest... and I find it is being used more, as an excuse to steal more money from taxpayers.

Our Unitary Corporate Return was accessed a penalty of $125 EACH for failure to pay the $456 minimum due Electronically (paid with Voucher and a check when return was filed on time - Separate entities did not have the ACH access to pay electronically), even though the Parent company was well overpaid with the extension and had a huge overpayment to the next year. Massachusetts would not renegotiate the penalty. It really ticked me off! This consolidated return is one of the most difficult one I do. At least now it is e-filed under the Parent Company only and not as in the past, Franchise separate return and Excise on the Unitary. What a nightmare getting them all accepted.

[Terry D EA]

Preparing my first three extensions this week.

[JohnH]

Smart move.

I like the way you think...