Why not file extensions for all 1040s on February 5th

Technical topics regarding tax preparation.
#1
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A little outside the box and probably a bad idea, but why aren't all tax preparers immediately filing extensions for all of their clients on the first day of e-file eligibility? If you file your return a month later, what are the negative consequences (if any?).

I've had exactly two beers.
 

#2
WEISSEA  
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Search "extension" topic, recall technically needed to have reasonable estimate of balance owed. Could not have estimate done for all clients by 2-5-19.
 

#3
makbo  
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Also, what are you going to give to your clients as a reason for extending -- that you won't be able to complete the returns on time? (Hopefully you aren't in the crowd that files extensions without even asking/telling the clients.) They might not like that.
 

#4
lucyko  
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If my memory serves me correct there are approximately 60 % of the clients who file their return by April 15 and 40 % after who would generally get extensions . It;s a waste of time to prepare extensions for the 60 % .
 

#5
LW25  
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Filing an extension for Form 1040 where the taxpayer doesn't really "need" the extension and files the return by the regular, original due date could have disastrous consequences if the taxpayer later files bankruptcy and has an unpaid tax with respect to that return.

Example (ignoring the effect if any of deadlines that ostensibly fall on a Saturday, Sunday or holiday):

Suppose that a taxpayer filed a timely extension for his 2013 Form 1040, but ended up filing the return in March 2014 anyway -- even though the return filing deadline was extended to October 15, 2014.

And, suppose that the IRS later audits the return, and asserts that an additional $100,000 is owed -- a tax that the taxpayer doesn't have the resources to pay. In May of 2017, he files Chapter 7 bankruptcy.

Even assuming for the sake of argument that there is no assessment yet (thus no Federal tax lien yet), and even assuming that no other exceptions to the bankruptcy discharge rules apply, the unpaid portion of the year 2013 tax is still non-dischargeable, since the three year period under 11 USC section 507(a)(8)(A)(i) (by virtue of section 523(a)(1)(A)) runs from October 15, 2014 to October 15, 2017. Under the case law, even though the taxpayer didn't "need" the extension, the three year period will not have expired at the moment the taxpayer files his petition in May 2017. Thus, the unpaid tax is non-dischargeable in Chapter 7.

Had the taxpayer not filed the extension, his three year period would run from April 15, 2014 to April 15, 2017, and the unpaid year 2013 tax therefore might be dischargeable in the bankruptcy filed in May 2017.
 

#6
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Filing an extension for Form 1040 where the taxpayer doesn't really "need" the extension and files the return by the regular, original due date could have disastrous consequences if the taxpayer later files bankruptcy and has an unpaid tax with respect to that return.


It could also save the day if something important was missed, like a statutory election. Many firms do exactly as the OP suggests, which would allow for a superseding return.
 

#7
makbo  
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Jeff-Ohio wrote:It could also save the day if something important was missed, like a statutory election. Many firms do exactly as the OP suggests, which would allow for a superseding return.

So that would be filing the extension for the benefit of the firm, not the client. Do these firms notify the client of what they are doing and why?
 

#8
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I don't do it for ALL clients by any stretch, but I do file for a large number and have a couple instances where bacon has been saved as Jeff suggests. I also have a brief discussion with the client.
~Captcook
 

#9
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So that would be filing the extension for the benefit of the firm, not the client.

Depends on the facts. Worst case, it’s mutually beneficial. Long and short is that there are numerous valid reasons. A strong case can be made that it’s a sound practice to extend everyone:
https://www.thetaxadviser.com/issues/20 ... nsion.html
 

#10
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Possible Cir 230 violation. Also opening yourself up to liability (LW25 listed one possibility).

Previous discussion on it here: viewtopic.php?p=34831
Dave

Taxation is the price we pay for failing to build a civilized society. ~ Mark Skousen
 

#11
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Possible Cir 230 violation. Also opening yourself up to liability (LW25 listed one possibility).

Never, ever seen an extension filing subject to a practitioner to a Circ 230 violation. Maybe you could give us a real life example of a prosecution. Circ 230 doesn’t apply to preparation anyway. In LW’s example, the guy should have just waited to file for bankruptcy. In addition, who knows what circuit LW is talking about. The Bankruptcy Courts have been all over the place with this issue. I actually find that if we had to choose, we’d wish the return was extended, when it wasn’t…as opposed to wishing it wasn’t extended when it was.
 

#12
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Neither have I, but what relevance is that? Given the choice of our limited experience or Karen Hawkins' statement when she was head of OPR that filing unauthorized extensions was a 230 violation, I'm going to go w/ Hawkins.
Dave

Taxation is the price we pay for failing to build a civilized society. ~ Mark Skousen
 

#13
LW25  
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SlipperyPencil wrote:Neither have I, but what relevance is that? Given the choice of our limited experience or Karen Hawkins' statement when she was head of OPR that filing unauthorized extensions was a 230 violation, I'm going to go w/ Hawkins.


I wonder whether the Hawkins statement was made before the Loving case was decided by the Federal district court in January 2013. (Maybe the Hawkins position is no longer tenable ???)

A tax return preparer could make an argument that filing an extension request is closer to "tax return preparation" than it is to "representing taxpayers in dealings with the Internal Revenue Service." The argument would be, then, that filing an unauthorized extension request technically is not a violation of Circular 230.

I'm not sure. I would need to go back and re-read Circular 230 -- and the Loving decision (which was affirmed by the Court of Appeals in 2014).
 

#14
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but what relevance is that?

The relevance is that someone says, “You can’t do that, it’s a no-no,” but there’s no evidence that what the person says is ever carried out, it means it’s an empty threat. And even if is a real threat and OPR tried “prosecuting” it tomorrow, we might wonder how valid their position really is, on its merits. But we don’t really need to wonder about that, given that the IRS can’t regulate the preparation of an extension. However, with that said, you’d have to point us to the specific Circ 230 rule that we are purportedly violating. Then we’d have to run that rule against the backdrop of the somewhat recent cases, which have restricted the scope of Circ 230, to see if it really is a rule that can still be enforced. Otherwise, I’m afraid the IRS loses unless they can point to some other civil or criminal statute that’s been violated.

Given the choice of our limited experience

Right. Just 100 years of filing tax returns…and not a single prosecution anyone can find…

or Karen Hawkins' statement when she was head of OPR that filing unauthorized extensions was a 230 violation, I'm going to go w/ Hawkins.


If she really made this statement, it’s just her opinion. But you are free to go along with her opinion, even though it’s coming from a person who was way wrong with one of her other opinions, the one about the IRS having the authority to regulate tax preparers.

The argument would be, then, that filing an unauthorized extension request technically is not a violation of Circular 230.

Right. That’s what the argument would be.

A tax return preparer could make an argument that filing an extension request is closer to "tax return preparation" than it is to "representing taxpayers in dealings with the Internal Revenue Service."

Way closer. It’s a tax document and there is no representation of the taxpayer by the practitioner “before the IRS.”

I wonder whether the Hawkins statement was made before the Loving case was decided by the Federal district court in January 2013. (Maybe the Hawkins position is no longer tenable ???)

If she even made that statement…if made before Loving, it’s questionable on its merits for one thing. And it’s questionable for another thing too: Loving didn’t really change anything. IRS had no authority to regulate preparation even before Loving. And if the statement was made after Loving, it’s still questionable on its merits – that aspect doesn’t change. And it would be more questionable if made after Loving for obvious reasons – by that time, courts have chimed in and said IRS can’t regulate.

This isn’t the first time I’ve heard of the statement being made. If it was made, I think it was a long time ago. I don’t think much of the comment. I’m willing to be convinced otherwise, though. I just haven’t heard the arguments/specifics that support it.
 

#15
Doug M  
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You think that a national CPA firm would go on the record (article in AICPA journal) to advise this strategy in certain circumstances if Circular 230 would come into play? (Also, the AICPA professional ethics are substantially more stringent than 230)

I do this for a handful of clients. To blanket the prior year returns with an extension is borderline malpractice. You are filing a binding/irreversible legal tax form for a taxpayer that might not be your client. And this ok?
 

#16
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The biggest reason for practice management that I can think of is capturing the billing. If you are a firm that charges for extensions, it would be harder to bill a client for something you did prior to them asking for it. Even if they did need the extension later and found out everyone who didn't need it got it free...that would be my biggest worry.
 

#17
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TacticalCPA wrote:...and found out everyone who didn't need it got it free...that would be my biggest worry.


This doesn't even make the same zip code as worry for me.
~Captcook
 


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