Stimulus Payment on Balance Due Return

[Koss]

Notice that the IRS schedule for issuing stimulus payments, for those that will receive them by direct deposit, has everyone getting their payment by May 16.

Obviously this only applies to those who have actually filed their return by April 15, and it probably only applies to those who file electronically. But a few folks may have filed a paper return way back in early February, and requested direct deposit of the refund. Since that return has been processed, and the IRS has the direct deposit info, they'll probably be able to use it for the stimulus payment.

For balance due returns that are filed electronically...

According to the IRS, some tax software will be updated to allow the entry of direct deposit info even on a balance due return, and even if the taxpayer chooses direct debit to pay the balance.

But even if your software can't perform that trick, it still seems like there might be an easier alternative.

Regardless of how the taxpayer actually pays the balance due...

What about simply paying $600 less than the balance?

If you carefully review the IRS schedule for release of direct deposit payments and paper checks, it sure looks like they plan to determine eligibility by May 16 for anyone who has filed electronically by April 15.

And elsewhere on the website, the IRS has made it clear that anyone who owes unpaid tax at the time the payment becomes available will have it applied to their balance due.

And in general, if you file a balance due return without paying the full balance, the IRS sends you a bill, and does not charge interest or penalties if you pay it within 30 days.

That's 30 days from the date the bill is mailed out--not 30 days from April 15.

Anyone who is eligible can probably just short pay the balance due, and have the rebate applied to the balance. It sure looks like it will be applied within the 30-day window.

Even if it isn't, they would still be able to just pay the bill... or call the IRS a few days before the 30-day mark, to see if the rebate has been applied to their account...

Okay, that's probably too complicated for most of our clients. But in theory it'll work.

[JohnH]

Checking account info

I've been entering checking account info on all balance due tax returns (paper filed) the entire season, specifically because the IRS web site said from the start this would speed up the rebate. It's been requiring a manual override in my software (ATX), but it works just fine.

I agree that filing a "short paid" return will also work fine and have suggested to a couple of people that they do excatly that. Seems to me it won't make much difference (if any - as you have pointed out), but I'd also file an extension for them as a backup precaution, just to be sure there's no FTF penalty if something should go wrong.

[BP.]

Anyone who is eligible can probably just short pay the balance due, and have the rebate applied to the balance.

A lot of people have asked about doing this.

It sure looks like it will be applied within the 30-day window

I was wondering if this would be the case.

[ecb34691]

Koss - direct deposit is direct deposit no matter whether e-file or paper. The only direct deposit items that are going out as checks are those who got bank products - RAL's, etc.

[Peachie]

Would you not be taking a chance?

What about simply paying $600 less than the balance?

What if the rebate isn't applied when scheduled? Would not the IRS be able to comeback and charge a small amount of interest for late filing?

I do owe a balance and expect IRS to make the withdrawal on April 15. My stimulus payment is scheduled for May 16. That's 31 days. I am treating each transaction as separate ones. Is there something wrong with this way of thinking?

Peachie.

[JohnH]

Not a big deal

Nothing wrong with your way of thinking, but there isn't much at stake no matter how it's handled. The total charge on a $600 balance would be about $7 per month at most (that's the total of interest and Failure to Pay penalty), so it seems to me there isn't much to worry about either way. Some might decide it's worth risking $7 to keep the $600 on hand.

The only risk to be gaurded against is the Failure to File penalty, which is 5% per month. That can be easily handled by filing a precautionary extension.

[Koss]

31 days

It is interesting that it is 31 days...

And I have to concede that technically the IRS could bill interest for that period.

There would not be a penalty for late filing. The return itself would be considered timely filed. Technically, the payment might be late.

Two observations:

(i) Even if the IRS bills interest for the entire 31-day period, the amount is likely to get lost in rounding off. I have always believed, and I continue to believe, that there is a collection threshold. It may change from time to time. But at some point it costs more to bill and collect it than the amount that is actually due. Certain amounts get zeroed out or written off. Many state and city tax departments explicitly state that if the amount due is under two dollars, the taxpayer does not have to pay. The IRS may not publicize the threshold, but I believe it exists.

I admit that I do not know whether the code effectively requires the IRS to calcuate the interest and late filing penalty backward to the due date of the return, or only to the 30th day when the payment was due. If it is only to the 30th day, then the amount would almost certainly be under one dollar.

(ii) Shifting gears a bit, I will also concede that if the payment is technically considered late, even if no interest or penalty is actually collected, this could conceiveably have adverse consequences for a very small group of taxapayers... those with installment agreements or pending offers in compromise could theoretically be in default. And at least in theory, for tax professionals, a late payment could jeopardize your standing as an ERO or EA.

In practice, I don't think they would boot someone from e-file over this, or suspend EA credentials. I'm NOT an EA. But what I've learned is that they do take action over late filing. Late payment is not as much of an issue as long as the tax gets paid before going into the collection process...

[ChEAr$]

Irs

in it's "finite wisdom" has announced that there's no way in hell someone like me with a balance
due can qualify for direct deposit of the rebate check.
So I guess I'll have to wait till mid June to do my part to help stimulate the economy.

Added a few minutes later: But now I see reference to a 3/20/08 IRS announcement saying
they will, but depending on software used. I give up.

[joanmcq]

I'm kinda teed off because I owe this year, and always do direct deposit when I have refunds. I'm almost tempted to file an extension and overpay by a few $$ so I can then DD the refund, and thus get a DD stimulus. Don't know yet if I can put in DD info even if I owe and choose to pay by check in my software. Got big vet bills to pay.

[Koss]

Precautionary extension?

The only risk to be gaurded against is the Failure to File penalty, which is 5% per month. That can be easily handled by filing a precautionary extension.

If the tax return itself is filed electronically before April 15, or even right on April 15, then the IRS acknowledgement and the DCN prove that the return was timely filed. The same would also hold for a paper return sent by by certified mail or by private delivery service. So I don't really understand the need for an extension...

In fact, the same issue arises with an extension. If you file an extension by regular US mail, it is possible that the IRS could later claim that it was not filed. If you file the extension electronically, then you have proof that it was filed. But if you can file the extension electronically, then why not just file the return?

[Koss]

Light bulb...

I suppose I can see why an extension might make sense if you have a client who schedules an appointment to come in and sign Form 8879 on April 13...

Or a client with whom you do business by mail, or by e-mail. I know an accountant who gets most of his clients' signatures by sending them a PDF of Form 8879. The client prints the form, signs it, and sends it back by regular US mail.

So I can see where if you send the form to your client on April 5, you might be a little concerned about when you're actually going to get it back...

[Possi]

installment agreement request

I just did an installment agreement request for a client. Will his Stimulus check automatically go toward the principle on his present tax liability? I hadn't thought about it at all until I read these posts....