valid 4868

[BrewOne]

I was tacking this onto a thread and thought it probably deserved it's own.

Have heard preparers argue about entering all zeroes on a 4868 and although it might be better than doing nothing, Rev. Rule 79-113 (yes, it's an old one) was recently brought to my attention.

It essentially says that the extension is invalid if the tax liability is not properly estimated.  The burden would be on the taxpayer to show that they did not have evidence at the time of the filing that discredited the estimate.

I basically tell anyone who phones just wanting an extension to go to Direct Pay and, under 'Extension', pay what they think they owe.  The IRS FAQ on extensions states that this payment counts as having filed an extension and you would not be on the hook for an invalid extension.

[Lee B]

4 minutes ago, BrewOne said:

.  .  .  . 

I basically tell anyone who phones just wanting an extension to go to Direct Pay and, under 'Extension', pay what they think they owe.  The IRS FAQ on extensions states that this payment counts as having filed an extension and you would not be on the hook for an invalid extension.

Yeah, I remember years ago filing extensions with a zero balance due, never caused a problem.

Thanks BrewOne, I had forgotten about the Direct Pay extension option .

[Catherine]

The problem, @BrewOne, is all the clients for whom we have absolutely nothing *except* a request for an extension. If it's someone who always owes, it's one thing, and we can recommend some type of payment. If it's clients who see-saw back and forth between owing and getting a refund, not so much.

We file extensions even with no information, if we don't have anything. What I won't do is use a dartboard to decide what people should pay, just to make it "legitimate" because as far as I'm concerned, a figure pulled from a dartboard (or ceiling) is just as accurate as zero.

[BrewOne]

I completely understand--but the Direct Pay method can also put the burden on them for the amount they pay.  Yes, they may come back with, I don't think I owe anything.  So if you file a 4868 with zeroes, at least get in writing that you warned them about accuracy and possible penalties.  I know it gets old saying "It's an extension to file, not to pay."

[Bart]

79-113 says extension could be invalid if the tax liability is not  properly estimated.  It does not make any reference to paying.

[Lee B]

41 minutes ago, Bart said:

79-113 says extension could be invalid if the tax liability is not  properly estimated.  It does not make any reference to paying.

I wonder if anyone has ever run in trouble by filing a zero estimate when there was tax due.

I don't have any clients now, but I certainly used to have clients where I filed a zero estimate.

[jklcpa]

30 minutes ago, cbslee said:

I wonder if anyone has ever run in trouble by filing a zero estimate when there was tax due.

I don't have any clients now, but I certainly used to have clients where I filed a zero estimate.

I've done this many times over the years too and never had an extension deemed invalid either. Obviously anecdotal. 

[BrewOne]

The IRS would have to decide it was worth the effort to invalidate, it would not be a routine matter.  But they can certainly set the computer to assess an accuracy-related penalty if xx% or more of taxes owed had not been paid in by the deadline.

[jklcpa]

12 minutes ago, BrewOne said:

The IRS would have to decide it was worth the effort to invalidate, it would not be a routine matter.  But they can certainly set the computer to assess an accuracy-related penalty if xx% or more of taxes owed had not been paid in by the deadline.

Per 4868 instructions, IRS considers that if at least 90% of tax is paid in by that extension date and if tax bal due is paid when return is filed, then that constitutes reasonable cause for not paying with the extension and late payment penalty won't be assessed. 

Sorry on my phone and having trouble going back and forth to the docs. 

[Lion EA]

I've heard that it can come up during an audit, that an extension would be invalidated then if filed with zero owed or an unreasonable number. I don't know if one instance would move an auditor to then open a "preparer project" to look for more zero extensions from that same preparer.

I'm filing more than I'd like to this weekend. I think I've heard back from everyone who's going to make a payment. But many more clients have asked for extensions without further response to my queries. Their numbers are not on my ceiling. I figure it's like basis -- if they didn't give me what I need, then it's zero. 

[Jim Oh Bkkr]

I had to fight this in the early '90's. NOT fun.  Since then extensions, after client explanation and approval, is filed with ABSOLUTE WORST case scenario.  If client won't agree to worst case scenario, they provide, in writing, the numbers for 4868.

[Randall]

I wonder too how much IRS really checks this.  I just use the amount of tax withheld in prior year as estimate for current year and show as that amount paid.  If they usually owe, I try to contact them to pay something.

[Randall]

As an additional question, do you all use the Form 8878?

[Margaret CPA in OH]

I do, ever since I discovered it a few years ago.  Before that, I only filed paper forms.

[BrewOne]

I started using it last year but it's only required (for a 4868) when there is an electronic funds transfer.

[jklcpa]

I do as BrewOne by using the 8878 only with electronic funds transfer.

[Catherine]

8878 only with payment.

MA retroactively nullified extensions if no payment was made, and tax was due - until they stopped bothering with extensions unless there was a payment made. IRS could make the whole thing moot by granting automatic extensions of time to file and giving the option to pay in April - and still add in penalties and interest is payment is made after the April deadline if tax turned out to be due. 'Course, that would make sense, so they won't.

[Margaret CPA in OH]

Guess I inadvertently fell into this because it seems virtually all of my extensions have payments to be made, too!

[jklcpa]

For those of you that file extensions with a taxes owed but no payment with the 4868,

• do you show the the actual projected figures and tax due not being paid, or
• do you show the tax and the total of withholding and estimates as the same amounts so that the math comes to the zero payment?

[Catherine]

18 minutes ago, jklcpa said:

For those of you that file extensions with a taxes owed but no payment with the 4868

If I have one of those and no debit payment, I send the coupon showing amount due to the client (securely, duh) and let them send it in with, or without, a check. I just ask them to let me know how much they paid.

[Abby Normal]

One of my customizations of the 4868 in ATX is to link the prior year tax from the Comparison form to the 4868. I figure last year's tax is better than a zero, especially if I have no documents from the client. Programmers should add an option to the 4868 to use last year's tax rounded up to the next thousand, to make our lives easier.

[Abby Normal]

1 hour ago, jklcpa said:

For those of you that file extensions with a taxes owed but no payment with the 4868,

• do you show the the actual projected figures and tax due not being paid, or
• do you show the tax and the total of withholding and estimates as the same amounts so that the math comes to the zero payment?

The tax is the only number that matters. What you've paid and what you owe are not a consideration.

[jklcpa]

30 minutes ago, Abby Normal said:

One of my customizations of the 4868 in ATX is to link the prior year tax from the Comparison form to the 4868. I figure last year's tax is better than a zero, especially if I have no documents from the client. Programmers should add an option to the 4868 to use last year's tax rounded up to the next thousand, to make our lives easier.

I am missing a few 1099s for the one I'm asking for, but if I used that method then and using the information I do have so far, the tax reported on 4868 would be substantially understated b/c the client took an additional ~ $133K out of his IRA in 2022 without notifying me and didn't pay any of the quarterly estimates I'd set up. He did withhold federal tax @ 20% but is in the highest bracket.

[Lion EA]

Most of the ones that owe, I made go to DirectPay and myconneCT and other state websites to pay/file their own extensions. It's faster than collecting signed 8878s. Those that probably owe but refuse to pay now, I put the tax liability I project, any withholding, balance due, and $0 payment on the 4868. However, CT won't accept a balance due extension without a payment, so I zero it out if I can't convince the client to pay, because I also don't have time to get them the forms that they'll end up not filing anyway. I do have a few that I upload the forms, and they DO mail them with payments.

Really wish for automatic extensions to file. Even with teaching our clients to pay in April, we'd still save a LOT of time not generating more paperwork and more e-files.

[Jim Oh Bkkr]

18 hours ago, jklcpa said:

For those of you that file extensions with a taxes owed but no payment with the 4868,

• do you show the the actual projected figures and tax due not being paid, or
• do you show the tax and the total of withholding and estimates as the same amounts so that the math comes to the zero payment?

The amount of "tax" is my primary concern.  I have only had one instance in 35 years, where the client wanted to pay with the extension.