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Hope so because they are past due according to the tax code.

By the way, did you get all the information you need to estimate their taxes due?

Probably not from everyone.

For an extension to be valid, taxpayers need to estimate their tax due. And when filling out form 4868, it’s pretty common for zeros to be entered on lines 4, 5 and 6 but zero will not work, even as a placeholder.

If your client estimates zero—even if it’s likely true—and then when they file ends up owing 10k, the IRS is taking the position that the form is not properly filled out. They can invalidate the extension and penalize your client as if they never filed an extension. Ouch!

 

Do it Right

Instead of owing interest and penalties of about 1% per month (or a fraction of the month), your clients will owe 5% per month (or the corresponding fraction) on the unpaid 10k.

Your clients’ problem? Yes.

Your problem too. Here’s why….

Joe filed an extension that was recently challenged by an IRS auditor. Joe was stuck with penalties.

 

Keep Good Records

In another situation, when Marilyn was cited by the IRS as not having filed an extension, she pointed the finger back at her tax preparer, whom she said had filed for her. Upon checking, the IRS found no evidence of an extension filed. This may or may not have been the case, but either way, non-existent tax preparer records would have been valuable.

These situations and others like them have precipitated copious discussions with accountants about potential preparer penalties for not advising the taxpayers how an extension works.

As for filing and proof thereof, our best advice is also to keep meticulous records on all your client meetings.

 

Four Requirements

There are four requirements for a valid individual income tax extension in Treasury Regulation Section 1.6081-4(b):

(1) Fill out Form 4868.

(2) File it on or before the date the return is due.

(3) File it with the IRS where indicated.

(4) Show the full amount of properly estimated tax.

If your clients (or you) file an extension without making an estimate of the tax when the information was available, the extension can be held to be invalid.

Avoid these types of issues altogether. Your membership with IRS Solutions Software will put this and more information in your hands.

 

Learn about First Time Penalty Abatement by becoming a member of IRS Solutions Software. We’ll provide you with penalty abatement letters and audit letters and more, giving you the confidence to provide services you may have been uncomfortable with in the past.

Another benefit of membership is the training you get on our monthly case study calls. Don’t Miss Out! Sign up with IRS Solutions Software and Gain Access to These Informative Monthly Case Study Webinars on the 4th Thursday of Every Month at 10am-11am PDT.

 

May Webinar Topic:

Income & Expense for Collection Purposes

Discussing Tips, Tricks, and the IRS Allowable Expenses

 

Ready for more? For starters, please pick up our FREE PRICING GUIDE. Act now so you’re ready when your clients owe tax this year.

 

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