October 10th, 2022
For many tax professionals, April 18, 2022 marked the end of a long march toward the due date for individual and corporate tax returns. But for those individuals and businesses that did not have the required information, the availability of an extension provided an additional six months to receive forms and assemble other information that is necessary to file accurate tax returns.
But what seemed like a long time expires a week from today, on October 17, 2022. Let’s look at a few tried and true considerations for wrapping up this year’s extension season.
Some of our clients may need to be reminded about signing returns. Both spouses must be available to sign for a tax return unless a valid power of attorney is presented. Keep in mind that this can now be accomplished remotely with an electronic signature. As their tax professionals, communication with clients becomes important and all the more critical as a deadline approaches.
Not all taxpayers have familiarity with extensions. They may mistakenly believe that the extension provides additional time to pay their tax. That no extension is available for tax payments may be unwelcome news to these taxpayers, so yet another reminder may be needed. If taxpayers did not pay all taxes due by April 17, there may be some unpleasant surprises in the form of penalties and interest.
To compound the pain, interest rates have increased. Starting this month, interest on unpaid tax balances increases to 6% per year. One year ago, the interest rate was half that amount.
Sometimes a tax return must be paper filed, perhaps because an unusual form is not yet incorporated in our tax software. That involves printing the necessary forms, assembling them in the correct order, signing them as paid preparers, and getting the taxpayer(s) to sign them.
Priority mail may be the best way to get them to the required IRS address. The U. S. Postal Service has special priority mail envelopes that can be used. These should be taken to a post office before the close of business so that a clerk can scan the envelope. If the postal service’s website is used to generate the mailing label, a memo field is available to distinctly identify the filing. Unfortunately, only 10 characters are available for this.
If your client chooses not to use priority mail, they should at least get the envelope’s stamp canceled by hand. This step should be undertaken to ensure the envelope bears the correct date and postmark, because the IRS uses this date as the date the return was filed.
Hurricane Ian stormed ashore and made a mess of Florida, the Sunshine State. The relief that the IRS is granting taxpayers in affected areas of Florida was described in last week’s blog post, which you can read at https://taxschool.illinois.edu/post/disaster-relief-for-taxpayers/. As many taxpayers’ records may have been destroyed, postponing the filing deadline is an important step for them to file accurate tax returns.
A special set of extensions applies to military personnel. Military personnel serving our country in combat zones have additional time to file tax returns. This may also apply to civilian personnel supporting military operations, provided they are under the direction of the Armed Forces. Spouses of military personnel also qualify for the extension, although exceptions apply.
Extensions grant the service member at least 180 days after they leave the combat zone or their period of qualified hospitalization ends, whichever is later. This may be extended even more for days remaining until the current return is due when they entered the combat zone.
As business tax returns become complex, it isn’t uncommon for important forms to not be available until August or even early September. In past years this has included Schedules K-1 for partnerships and S corporations. This year brought the advent of a new set of forms, Schedules K-2 and K-3. Each of these schedules was long enough to justify a set of delays. In addition, their existence may require additional entry of information into tax returns that is difficult to check.
It happens that some taxpayers cannot pay the taxes due, even with the additional six months to collect the necessary funds. This could be embarrassing to some taxpayers, who may wish to avoid tackling the unpleasant circumstance by not filing. This decision only complicates the situation and compounds the pain by adding failure-to-file penalties. If the IRS sees that the taxpayer was aware of the filing requirement but simply disregarded it, it may try to assert penalties for willful neglect.
For tax professionals, this year’s collective sigh of relief comes at the end of the day on October 17, the 290th day of the year. That leaves another 75 days in 2022 for recovery, vacation, holidays, and… Fall Tax School. Be sure you sign up here.
Last Warning… Extension Deadline is Friday, taxschool.illinois.edu/post/last-warning-extension-deadline-is-friday/.
By John W. Richmann, EA, MBA
Tax Materials Specialist, U. of I. Tax School
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