penalty & interest on extended tax return

[sdtaxman]

Just wondering how people handle the penalties and interest on extended tax returns when people were informed that the return may have to be an extension when it was brought in and they opted not to send any payment with the extension.

[JohnH]

When the return is ready, file it and the client pays the balance due. IRS will send them a bill for the FTP penalty and interest. If they don't pay the balance due when it's filed, or if they make a partial payment, IRS will send them a bill for the balance of the tax due plus the FTP penalty and interest. If they can't pay that in full and need some extra time, IRS will usually work with them. They will still continue to pay FTP penalty and interest on the unpaid balance, just like they would if they owed Master Card or VISA, but at about half the effective interest rate they'd pay those charge cards. IRS is very lenient in these matters - all they want is for the tax to be paid and whatever interest & FTP penalty accumulates. The key is for the client to communicate with them and to adhere to their standards.

[taxea]

if you are asking do you have any responsibility for them incurring the penalty and interest....you don't

[geekgirldany]

I've stop doing zero extensions this year. So you definitely need to send in the extension with the tax liability on it (not your original question I know). I have even done some on information from 2013's tax return after speaking with the client.

Unfortunately, even after I tell the client is a extension to file not to pay they still it use it as such. You don't have to handle the P&I, the client does. They know they will owe penalties and interest and are only extending the inevitable in most cases.

(Noticed my sentence structure has got worse as the tax season has went on).

[JohnH]

Incidentally, if they are not paying anything with the extension or making a partial payment, I think it's a good idea to err on the high side when calculating the tax liablity. If the return were ever audited, the requirement to enter a good faith estimate would be easier to justify if it leans to the high side.