Extension Issues

[Tax Sleuth]

If a completed Form 8332 is provided to me, the client gets a refund. If the form is not given to me, the client has a balance due. The client says he will provide me with the missing documentation but not in time for April 17. Should I file an extension for the client with the assumption he will produce the Form 8332? Do I need to have him sign anything or is that unnecessary in this case?

[TaxGuyBill]

Filing an extension makes most sense.

You may want to tell the client that in the event Form 8332 is not produced, that penalties and interest on the amount owed starts on April 18th.

There is nothing to sign for an extension, unless an electronic payment is being made along with the extension.

[ATSMAN]

If a completed Form 8332 is provided to me, the client gets a refund. If the form is not given to me, the client has a balance due. The client says he will provide me with the missing documentation but not in time for April 17. Should I file an extension for the client with the assumption he will produce the Form 8332? Do I need to have him sign anything or is that unnecessary in this case?

I would file an extension without considering the 8332 because it does NOT exist by the filing deadline. Make sure you give him a copy with the balance due and document that. A prudent person would pay the balance due with the extension and then get the refund when the correct 8332 is filed.

I have had situations similar to this involving a 1098-T or form 2441 and that has been my standard operating procedure. If taxpayer does not want to pay the balance due with the extension, it is their problem not mine!

[JohnH]

I agree with ATSMAN. The only thing that can potentially cause a problem is under-estimating the tax liability on the 4868. An estimate which can be demonstrated not to have been made in good faith is the only potential way to invalidate a timely extension.

The amount paid does not affect the validity of the extension in any manner with respect to the FTF penalty. For example, if the estimate shows $2,000 due, the extension is valid regardless of whether the taxpayer pays $2,000 or nothing. So I always estimate the balance due on the high side, and let the client decide how much they want to pay. If they underpay, they will owe a little less than 1% per month on the underpayment (interest plus a 1/2 of 1% FTP penalty), but that was their decision, not mine. I will give them the high side and low side of my range, and the reasons why, but at the end of the process the decision on how much to pay with the 4868 is entirely their call.

State rules may differ, but that's the way the Federal extension works - it has been that way for decades.