Tom Talks Taxes - October 16, 2022

Last-minute tips for the 2021 Form 1040 filing deadline

Tomorrow, October 17, 2022, is the federal deadline for extended calendar year 2021 individual tax returns (unless the deadline was postponed in a particular location due to a disaster). Many practitioners are still working on completing individual tax returns and wrapping up this filing season.

Here are some considerations for the next 48 hours:

Additional Two-Month Extension. Some Form 1040 filers can receive an additional two-month extension to December 15th. To qualify for the extension, the taxpayer must be living and working abroad, or in the military, stationed out of the country. The letter requesting the extension must be sent to the Austin Service Center.

The request must be filed on or before the extended due date (or postmarked if relying on §7502 timely-mailing, timely-filing rules). Besides the taxpayer’s name, address, and Social Security number, the request must contain two essential elements:

1. The taxpayer must specifically ask for an additional extension that would result in a total extension longer than six months.

2. The request must indicate the reason is due to the taxpayer living and working abroad, or in the military, stationed out of the country.

Requests for extensions that state these two criteria are granted. See Internal Revenue Manual (IRM) 3.11.212.9.6.2 (01-01-2022), Extension Longer Than Six Months, for more information.

E-file Rejections. There is a five calendar day perfection period to correct and resubmit the return. If the issue cannot be resolved, the taxpayer must file the paper return by the later of the due date of the return or ten calendar days after the date the IRS gives the rejection notification, whichever is later.

Elections. Certain elections may be unavailable on a late-filed return. Most statutory or regulatory elections must be made by the return's due date, including or excluding extensions. Some examples of elections that must be made by the due date of the return including extensions are:

1. De minimis safe harbor (DMSH) election for amounts paid to acquire or produce tangible property,

2. Safe harbor election for small taxpayers for costs of work performed on owned or leased buildings, and

3. Election out of §168(k) bonus depreciation.

If the return has an election that must be made on a timely filed return, a practitioner should make it a priority to timely file the return, or advise the client of the consequences of foregoing the election.

Estimates. Using an estimated tax return amount and timely filing a return can be a better alternative to filing a late tax return with exact amounts. In fact, in IRM 20.1.1.3.2.2.3 (12-11-2009), Unable to Obtain Records, one of the factors listed for IRS employees to consider in a reasonable cause abatement for failure to file is “Why the taxpayer did not estimate the information.”

The use of an estimate is at the practitioner’s discretion. It is certainly not required if the taxpayer did not make a good faith attempt to provide complete and timely records per the engagement letter.

I recommend making a conservative estimate by overstating income and understating deductions, with the goal of a later amended return creating a refund. If the difference between the actual number and the estimate is not material, an amended return may not be needed; however, Circular 230 still requires a practitioner to advise the client of the need for an amended return and the consequences, if any, of not filing one.

For example, a missing Schedule K-1 is a common situation for individuals on extension. In this scenario, Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), is filed with the estimated Schedule K-1 amount. This is a specified use of this form.

An estimate can be formally disclosed on Form 8275, Disclosure Statement; however, this disclosure may not protect a taxpayer from an accuracy-related penalty since maintaining adequate books and records with respect to a tax return position is generally required. See Treas. Reg. §1.6662-3(c)(1) and Treas. Reg. §1.6662-4(e)(2).

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