TV Experts

[Daune/CA]

On Sunday nite, a TV anchor told his listeners that they could "delay payment" by filing an extension!

I emailed "Fox40" Sacramento and advised that the anchor had erred in his statement. Told them that too many already believe that and they need to get it right. To my amazement, they chatted with a "Tax Expert" from HRB about this topic of extension of time to file but not to pay on Tuesday. It was evident from their questions that they were using my email as a basis for their questions. Even with HRB they finally got it right. Apparently, some do try to get it right. Surprising that with all the good EAs and CPAs in Sacramento that they must use a HRB "Tax Expert".

Kick back and enjoy the time until the "Tax Man Cometh Again"!

Daune/CA

[joanmcq]

Hey Duane, what part of Sac are you in?

Made me sick when NPR was doing a bit about tax and had Roni Deutsch on. As bad or worse.

[JohnH]

I think the anchor was technically wrong but corret in practice.

It all hinges upon what one means by "Extension of Time to Pay".

If one means that the IRS is giving people a little extra time to pay with no consequences, then it definitely it not an extension of time to pay.

But if one means that IRS is allowing the taxpayer to acknowledge that they owe, that they can't pay right now, and that they intend to pay later (along with interest and a very small FTP penalty), then the 4868 does constitute both an extension of time to file and an extension of time to pay. The instructions on the 4868 acknowledge that fact when they make it very clear that the extension will be valid even if the taxpayer doesn't pay the full amount owed.

I think IRS is very crafty with their extension policy. They proclaim loudly that the extension is not an extension of time to pay, then they directly contradict themselves by allowing people to acknowledge that they owe but they are not paying. The validity of the extension had much to do with a proper estimate, but absolutely nothing to do with whether it's accompained by payment. This has the practical effect of getting taxpayers to acknowledge the liabiilty and then giving them several months to begin crafting a plan to deal with it.

[Daune/CA]

I think the anchor was technically wrong but corret in practice.

It all hinges upon what one means by "Extension of Time to Pay".

If one means that the IRS is giving people a little extra time to pay with no consequences, then it definitely it not an extension of time to pay.

But if one means that IRS is allowing the taxpayer to acknowledge that they owe, that they can't pay right now, and that they intend to pay later (along with interest and a very small FTP penalty), then the 4868 does constitute both an extension of time to file and an extension of time to pay. The instructions on the 4868 acknowledge that fact when they make it very clear that the extension will be valid even if the taxpayer doesn't pay the full amount owed.

I think IRS is very crafty with their extension policy. They proclaim loudly that the extension is not an extension of time to pay, then they directly contradict themselves by allowing people to acknowledge that they owe but they are not paying. The validity of the extension had much to do with a proper estimate, but absolutely nothing to do with whether it's accompained by payment. This has the practical effect of getting taxpayers to acknowledge the liabiilty and then giving them several months to begin crafting a plan to deal with it.

Mostly it is an extension of time to file w/o penalty, but there is penalty if they do not pay timely. They can still pay later, but there will be penaties accessed.

[JohnH]

Yes, no disagreeement on that point. But the fact is that the failure to pay penalty is relatively mild, especially for someone who doesn't have the money to pay at tax filing time. Obviously if they can afford to pay then it's foolish not to do so, but for taxpayers who don't have the funds available for whatever reason, I prefer to give them clear information on the issue rather than to repeat the IRS scare tactic. As I see it, IRS does a pretty good job of keeping them in a panic - my job is to give them facts so they can make intelligent decisions.

I tell them the combination of the interest plus FTP penalty is the equivalent of borrowing the money at a 13 - 14% APR. Not exactly HELOC rates, but less that standard credit card rates. There's no loan application process or possibility of being turned down,the debt won't ding their credit score (provided they don't let it get to the point that a lien is filed), and they will still have any existing lines of credit open & available if needed for emergencies. Some of those positives are worth a point or two premium on short-tem financing, especially in these uncertain times. For someone facing that situation, this sort of knowledge is very useful and helps them to make more informed choices.

In the current environment I suspect the true net cost will turn out to be even lower in the coming months. First of all, the interest rate will likely adjust downward because the Federal Short Term Rate is down. Secondly, there are strong signals that the IRS is seriously modifying its collection practices and I think it could become much easier to obtain abatement of some penalties in the near future, especially for first-time delinquents.

One example of how it could work is something along the lines of the policy followed by the state of NC. If a taxpayer is otherwise compliant, they can obtain forgiveness of 100% of a first penalty and 50% of a second penalty. This option can only be exercised once every 3 years, but it's available with virtually no other restrictions by simply filling out a one-page form.

[Daune/CA]

I tell them the combination of the interest plus FTP penalty is the equivalent of borrowing the money at a 13 - 14% APR. Not exactly HELOC rates, but less that standard credit card rates. There's no loan application process or possibility of being turned down,the debt won't ding their credit score (provided they don't let it get to the point that a lien is filed), and they will still have any existing lines of credit open & available if needed for emergencies. Some of those positives are worth a point or two premium on short-tem financing, especially in these uncertain times. For someone facing that situation, this sort of knowledge is very useful and helps them to make more informed choices.

One example of how it could work is something along the lines of the policy followed by the state of NC. If a taxpayer is otherwise compliant, they can obtain forgiveness of 100% of a first penalty and 50% of a second penalty. This option can only be exercised once every 3 years, but it's available with virtually no other restrictions by simply filling out a one-page form.

John H, it is too bad we can't get you on TV to explain it like that so people can make an informed decision. My beef is that the TV people do not help folks in most situations, but make things more puzzling for them.

There is a need for other states to learn from what NC is doing. CA can't pass a budget on time, so I do not see them doing anything that would help folks.