Considering whether to file an income tax extension.

• Author: Simmens, Todd

As practitioners throughout the United States reflect on tax season 2017, the last detail they might consider is whether more clients should be encouraged to file an extension. For some taxpayer clients, an extension is a regular, yearly occurrence. For others, the notion of requesting time beyond the original due date is outlandish. And there also are those for whom the decision to extend comes down to the wire, determined by whether the return can be filed by the original due date. However, an extension of time to file generally should be considered for every taxpayer and for every tax period for which an extension is available, regardless of whether the taxpayer intends to fde on or before the original due date of the relevant income tax return.

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IRS processing of extensions

Taxpayers can file extensions of time to file income tax returns electronically or by paper. When the extension is filed electronically, the IRS will post the extension to the appropriate taxpayer's account under the relevant tax form and tax period. If the IRS rejects the electronic filing because of, for example, a mismatch of information, the taxpayer can resubmit or file by paper. When an extension is paper-filed (and proof of mailing is retained by the taxpayer or representative), it is input by IRS personnel to the taxpayer's account.

Protection from a late-filing penalty for individual taxpayers

Even when an extension is filed, any balance due must be paid by the original due date of the return to avoid a failure-to-pay penalty and interest. For corporate taxpayers, if at least 90% of the tax shown on the filed return is not paid with the filing of the extension by the original due date, the extension will not be approved, possibly causing a failure-to-file penalty to be assessed--in addition to the failure-to-pay penalty and interest.

For individual taxpayers, however, an extension may be approved regardless of payment of any balance due by the original due date (although reasonable efforts should be made to complete the amounts included on Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return). While a failure-to-pay penalty (at 0.5% of the tax shown or assessed on the return, per month (or portion of a month), with a 25% cap) will be imposed until the tax is paid, the higher failure-to-file penalty (at 5% of the tax required to be shown on the return after any earlier payments or credits, per month (or portion of a...