Feb 28, 2008

Filing an Extension on your tax return- is it null and void?

Many often think that filing an extension releaves you from paying until the extension is expired- i.e. October 15th, 2008. However, this is not true. In fact, if you do not properly estimate your taxes on the Form 4868, Application for Automatic Extension of Time to File, the IRS can declare your extension null an void. You must be reasonable in estimating the tax liability on line 4 of the Form 4868.

How does the IRS challenge the validity of the extension?? Usually under audit. If your return is selected for examination, the IRS will make a determination of ALL penalties including whether the extension is valid or not.

Normally this will not be an issue if the tax paid up to the date of the extension and with the extension (i.e. all payments before April 15th- the due date of the return) is 90% of the total of the tax that is on the return when it is eventually filed before October 15th. This is also true of the failure to pay penalty- if you have paid 90% before 4/15 - you will be considered to have "reasonable cause" for the non-assertion of the failure to pay penalty.

If you have impending tax debt on your 2007 tax return, it is best to consult a professional who can both advise you on your return and the tax debt resolution that will follow. Knowing your options and challenges is imperative in reducing your total liability and avoiding enforced collections.

1 responses:

IRS Help For You February 29, 2008 at 11:50 PM  

Jim,
I love reading your post. It has become a great learing session for me !

Diane

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