The IRS is reasonable about when you file your tax return—as long as you pay on time and file your request on time. If you've still got your fingers on the calculator, check out how you can get a respite of four or six months.

by Mark E. Battersby [April 12, 2001]

Procrastinators' heaven? The Internal Revenue Service has announced that taxpayers may now obtain an automatic four-month extension to file their returns by phone, computer—or by filing Form 4868. The IRS has even opened up a special toll-free phone line: 1-888-796-1074.

Unfortunately, those requests must be made by the normal filing deadline, says the IRS.

Permission to delay filing your income tax returns, whether personal or for your ISP business, has long been automatically granted by the Internal Revenue Service. Everyone can receive an automatic four month extension of time in which to file their tax returns merely by asking using Form 4868, "Application For Automatic Extension of Time To File U.S. Individual Income Tax Return" (38K PDF file).Similar extensions are possible for incorporated ISPs, although the filing date for most calendar-year corporations was March 15.

An ISP operating as a corporation or as an S corporation is also entitled to an automatic extension of six months for filing its return—provided that Form 7004 "Application for Automatic Extension of Time to File Corporation Income Tax Return" (34K PDF file) is timely and properly filed—along with the full amount of the tax due. This extension, however, can be terminated by the IRS at any time.

Your own private fiscal year
A sole proprietor using a fiscal year rather than a calendar year must file his or her individual income tax returns (including all applicable schedules) no later than the 15th day of the fourth month after the end of the fiscal tax year. Fiscal year taxpayers are entitled to the same automatic extension of time in which to file tax returns that a calendar year taxpayer is entitled to. Once again, however, you must file for the extension on Form 4868, by the due date for filing that return.

The due date for filing a fiscal year return is the 15th day of the fourth month after the original due date. An additional two-month extension (which will be granted at the IRS's discretion) is also possible.

Can't pay?
One form that the IRS spends little time promoting is Form 1127 (72K PDF file). That's the form you file when you can't pay your taxes on time. It's called: "Application for Extension of Time For Payment of Tax" and it gives you, as an individual, up to six months from the due date to pay the tax that you owe.

Unfortunately, you must be able to show that you can't borrow money to pay your tax bill except under terms that would cause severe loss and hardship. And, remember, although late-payment penalties are excused when you're granted an extension, you still owe the interest on the late-paid tax.

Ignoring the inevitable
What happens when you don't file a tax return or pay the taxes that you owe by their due date? First, the IRS will charge you interest (usually ranging between eight and ten percent) on taxes not paid by their due date, even if you've been granted an extension of time to file your return.

The IRS will also hit you with a penalty if you file your return late. In that case, the penalty is usually five percent of the amount due for each month or part of a month your return is late—unless you have a reasonable explanation.

Frequently, merely attaching a brief statement explaining the reason for the late return will be sufficient. In any case, the penalty usually can't be more than 25 percent of the tax due. Of course, if the return is more than 60 days late, the minimum penalty will be $100 or the total amount of any tax that you owe, whichever is smaller.

A penalty, if assessed, is charged for each month that taxes are late.

Further legitimate excuses
Any further extension of time beyond the four-month automatic extension must be applied for in writing to the IRS Service Center where you will file the return. Unlike the automatic extension, this request must be specifically granted. The application for an extension beyond the automatic four-month extension period may be in the form of a letter or Form 2688, "Application for Additional Extension of Time to File U.S. Individual Income Tax Return" (72K PDF file).

Naturally, clear reasons must be given for any "nonautomatic" extension. "Illness" or "Practitioner too busy," are too vague without further explanation. However, the IRS will usually grant extensions where the taxpayer's tax preparer was unable to complete the tax returns for reasons beyond the preparer's control or where, is spite of reasonable efforts, the taxpayer was unable to get professional help in time. The IRS has provided a system for avoiding the interest penalties that are imposed when you don't file your income tax returns on time. That system now includes a toll free phone number.

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Related articles:
	[Feb. 28, 2001]	Reasoning With The IRS
	[Nov. 15, 2000]	Tax-Saving Tax Strategies for ISPs