Missing extended deadline

[erchess]

Clients are a 65 yo male who has had bladder cancer since before 4/15 and I think before 1/1 but who has some weeks been able to work at least some and occasionally a full schedule and his 55 yo disabled wife who has an emotional illness and chronic pain. I did a proper extension.

The man is officially terminal but he has twice lived past dates by which he was told he would be dead. They are still doing radiation and chemo and he has an artificial external bladder that functions acceptably. The last the doctor told him was that officially he is still terminal but unofficially he might beat this disease. He's a very strong person who is taking things one day at a time.

What are the odds that I can get the FTF penalty abated if I end up filing them after the extended deadline?

I have advised them that even if they are sure they will owe and can't pay or even if they can't get their itemized deductions together, if they can get their income together it makes sense to file by the deadline because the greatest penalty is for failure to file. BTW as far as I know all the records I would need were in their possession well before 4/15 but many were probably "lost" in a terribly untidy house.

[JohnH]

I'd still try to get them to file. You can always amend if they later come up with other relevant information. As you pointed out, avoiding the FTF penalty is the first priority. I'd put the chances of getting the penalty abated at 50-50, meaning maybe you can and maybe you can't. But the late filing will haunt the return (even if there is a penalty abatement) if it is later audited.

Since the guy is likely terminal, he might be tempted to take the position "why do I care?" But I'd remind him that his wife won't need that added aggravation if he dies, so maybe he should do it for her sake. I've been dealing with a similar situation for going on 3 years, and I sure wish the guy had given a little more thought to the mess he was leaving his wife to clean up.

[FEDUKE404]

File what you have

One would assume, or at least hope, that MOST of the tax material (certainly the income side) is available and likely has been since before April 15th.

I would suggest filing with the best information at hand, and then straightening out things some time within the next three years. You can't go terribly wrong, for now, just using the standard deduction.

FE

[joanmcq]

I just got a POA and called the practitioner's priority line and got the wage & income info faxed immediately to me for one of my chronic late filers. He put his W-2s 'in a safe place' and now has no idea of where they are. So he might not get all his deductions, but I have the income and mortgage interest at least. And can get property tax info online.

[JohnH]

And, unless there's some sort of major change, for most clients last years return is a reliable indicator of the relevance of this years numbers.

[newbie]

I just got a POA and called the practitioner's priority line and got the wage & income info faxed immediately to me for one of my chronic late filers. He put his W-2s 'in a safe place' and now has no idea of where they are. So he might not get all his deductions, but I have the income and mortgage interest at least. And can get property tax info online.

If you use the online (or faxed) info can you efile? I ask because you wouldn't actually have W-2's or 1099-R's in your file and isn't that a requirement?

If you paper file would you attach the the wage & income statement in lieu of the a W-2 or 1099-R?

[AZ-Tax]

Penalty for not filing on time even though no tax owed?

I have advised them that even if they are sure they will owe and can't pay or even if they can't get their itemized deductions together, if they can get their income together it makes sense to file by the deadline because the greatest penalty is for failure to file. BTW as far as I know all the records I would need were in their possession well before 4/15 but many were probably "lost" in a terribly untidy house.

Under my thread "Is there a 2nd ext I am not aware of?" one of the replies from JohnH said: 2) If he doesn't owe anything, then a late-filed return won't cost him any penalties or interest. But if an audit later turns up additonal tax due, then the late-filing P&I would apply. That could easily happen with a Schedule C

So I am a little confused. Is there a penalty for not filing for a TP that will owe NO income taxes?

[JohnH]

I'm not sure where your confusion lies, but that won't stop me from trying to answer.

If the individual's income tax return shows no tax due, then there is no penalty for late filing, even if it is filed after the due date. Here we are talking ONLY about the immediate consequences of a late-filed return showing no tax due. If the return is never audited or changed, that's the end of the story.

Then we have to turn our attention to subsequent events - primarily an audit (although an amended return with tax due would produce the same following result) . If that return is later audited, and if there is no additional tax due, then there is still no penalty assessed as a result of the audit (even though the original return was filed late).

However, if an audit turns up additional tax due, then a late-filing penalty will be assessed by the auditor as a part of their work-up. There would also be interest and FTP penalties assessed as well.

This is why we must be careful in explaining the consequences of a late-filed return to a client. A no-tax-due return will not produce a late filing penalty at the time of filing. But don't leave the client with the impression that this is the end of the story. If a subsequent audit turns up additional income, disallowed deductions, or anything that raises their tax liability, then the return will be in the system as late-filed and the FTF penalty will be assessed AT THAT TIME. Therefore, if the return is originally late-filed, the IRS essentially gets a second shot at the client if they want to take it.

[Jesse]

The late filing fee is based on what he owes. If he filed but an audit later turns up additional tax due, a late-payment penalty would apply, but not a late filing fee. State may be different. Wisconsin is $30 even if you owe nothing or have a refund but filed late.

[JohnH]

Jesse - Are you sure about that? I think a late filing fee will apply to anything which turns up in an audit (if the original return was filed late). I just had to deal with that issue on a corporate return recently, and I assume the same holds true for personal returns.

I believe everything goes back on the table when an auditor shows up, including late filing penalties, late payment penalties, estimated tax penalties, and interest. If I'm mistaken about that I'd like to know, because that's the explanation I've always given clients who find themselves in this situation.

[Jesse]

Sorry to confuse

Jesse - Are you sure about that? I think a late filing fee will apply to anything which turns up in an audit (if the original return was filed late). I just had to deal with that issue on a corporate return recently, and I assume the same holds true for personal returns.

I believe everything goes back on the table when an auditor shows up, including late filing penalties, late payment penalties, estimated tax penalties, and interest. If I'm mistaken about that I'd like to know, because that's the explanation I've always given clients who find themselves in this situation.

The late filing fee is based on what he owes. If he filed but an audit later turns up additional tax due, a late-payment penalty would apply, but not a late filing fee. State may be different. Wisconsin is $30 even if you owe nothing or have a refund but filed late.

Let me rephrase - If he TIMELY filed but an audit later turns up additional tax due, a late-payment penalty would apply, but not a late filing fee.

Your state may charge a late filing fee even if he does not owe any taxes.

I'm jumping out of this thread as I jumped in too late and don't want to cause any more confusion.

[JohnH]

Sorry Jesse.
I mis-read your reply and I jumped to the wrong conclusion.

[erchess]

Update

I persuaded them to meet with me on Saturday so all should be well. I'll complete some kind of valid return at that time even if I have to file an amend later. I think the most likely scenario is that I will complete it on Saturday.

He definitely does want to do things the right way fortunately. He doesn't want to leave her ( or them if he's lucky) with problems from taxes not properly handled.