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Tom Talks Taxes - September 29, 2023
The secret Form 1040 extension to December 15
In most circumstances, an individual’s Form 1040 filing deadline can only be extended one time from April 15 to October 15. This is an automatic extension under Treas. Reg. §1.6081-4, and a taxpayer receives it by correctly completing Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, and filing it on or before April 15.
Under Treas. Reg. §1.6081-5(a)(5), a taxpayer with a tax home or abode outside the United States and Puerto Rico receives an automatic extension to June 15 without filing a request with the IRS; however, when they file their tax return, they must attach a statement disclosing they are filing under the June 15 extension.
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Treas. Reg. §1.6081-5(c) clarifies that
The term “tax home”… will have the same meaning which it has for purposes of section 162(a)(2) (relating to travel expenses away from home). If a person does not have a regular or principal place of business, that person's tax home will be considered to be his regular place of abode in a real and substantial sense.
Treas. Reg. §1.6081-5(a)(6) also provides a June 15 deadline to those on duty in the military or navy outside the United States and Puerto Rico.
If an individual taxpayer extended to June 15 needs more time, they can file Form 4868 and receive an additional four-month extension to October 15. The six-month extension runs concurrent to the two-month extension per Treas. Reg. §1.6081-4(a).
In most circumstances, an individual taxpayer is limited to extending the Form 1040 deadline to October 15; however, Treas. Reg. §1.6081-1(a) provides an exception:
However, other than in the case of taxpayers who are abroad or as specified in section 6081(b), such extensions of time shall not be granted for more than six months…
The IRS may grant a discretionary extension to taxpayers abroad for more than six months. By policy, the IRS limits the additional extension to two months, giving the individual taxpayer a Form 1040 deadline of December 15.
Internal Revenue Manual 220.127.116.11.6.2 (01-01-2023), Extension Longer Than Six Months, governs this additional two-month extension. Requests must be sent in writing to the Austin Service Center and must meet two specific requirements:
The taxpayer must specifically ask for an additional extension that would result in a total extension longer than six months, and
The request must indicate the reason is due to the taxpayer living and working abroad, or in the military, stationed out of the country.
As long as these two requirements are met, the IRM states the extension should be accepted, provided it was timely filed. For tax year 2023, the two-month extension request must be properly postmarked under §7502 on or before October 16, 2023. The two-month extension will be notated on the IRS account transcript; the taxpayer may or may not receive a letter confirming that the IRS granted the extension.
There is a wrinkle that is inequitable to taxpayers living abroad. The IRS’s recent position is that the additional two-month extension holds for all purposes except for Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. The IRS Gifts from Foreign Persons website currently states:
The Form 3520 will be due no later than October 15 for calendar year taxpayers even in the case of U.S. citizens and U.S. residents residing outside of the United States and Puerto Rico who may be granted a discretionary 2-month additional extension (to December 15 for calendar year taxpayers) for their income tax return beyond the 6-month extension requested by filing Form 4868. This discretionary additional 2-month extension does not apply to the Form 3520 due date, which is still due no later than the 15th day of the 10th month following the end of the U.S. person’s tax year (October 15 for calendar year taxpayers).
Form 3520 cannot be electronically filed; it must be mailed to the Ogden Service Center. Since the Form 3520 failure-to-file penalty for foreign gifts is draconian (5% of the gift or inheritance received for each month it is late, up to 25% maximum), this discontinuity, in addition to the required mailing of the form, increases the risk that a taxpayer living abroad will inadvertently become subject to substantial penalties.
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