What would YOU do?

[SueBaby]

This is the second year in a row. People will call me up (that is NOT my clients) and want an extension. I give it to them , thinking they would come here to do their taxes and they don't.

What would you do in this situation? Just give them one and forget it? Or am I making too much from this??? It is my pet peeve now. How can I handle it next time?

[JoshinNC]

We require a $40 payment for the extension

which is applied to their final prep fee if they come back. Most people have debit/credit cards, so even the "call ins" can handle this.

[KBTS]

You could tell them that you only file extensions for established clients. You could add that if they want you to file the extension, you will have to charge them $XX. That way, if they still want the extension but never come back you still have payment for your work.

[Jiggers]

Extensions

I will only do the extension for an established client.

Walk-ins, after my cut-off date, are told that they will have to apply for their own.

I get a supply of blank 4868's from the local post office and hand them out to anyone that wants to do their own.

Or I reference them to www.irs.gov

[JohnH]

I do everything I can to keep my CLIENTS out of my office so I can get some work done. So if a NON-CLIENT calls asking for an extension form, I offer to email them a pdf of the Fed & state extension. If they don't have email I'll mail them a blank form (I don't mind the 42 cents - I'll do anything to keep them out of my office). If a PROSPECTIVE client calls, in most cases I get their basic info on the phone, send them the extension, and tell them to call me after May 1. I don't charge for any of the above.

It rarely happens, but if someone walks in asking for an extension, I'll print off the pdf and give it to them at no charge just to get them out of my hair. (Again, trying to keep people out of my office so I can actually get some work done).

If any non-client (walk-in or phone call) asks for help in filling out the extension, I tell them I'll need to charge them the minimum fee ($80 for single and $140 for MFJ), which I'll apply against their final bill. This always discourages the people who "just want a little help filling out the extension"" and they go away.

The only flaw in the system is someone who pretends to be a prospective client and then never comes back, but there have only been a couple of those over the years so it's a tolerable risk IMO. (You can't have a firm policy for everything - if you do it will cover all the eventualities but sooner or later substituting rigid policies in place of your judgement will cause you to do some really stupid & ridiculous things)

[SueBaby]

You could tell them that you only file extensions for established clients. You could add that if they want you to file the extension, you will have to charge them $XX. That way, if they still want the extension but never come back you still have payment for your work.

I was too busy to think of that. But, next time I will. Thanks everyone!

[erchess]

My Policy

I charge a hundred dollars to do an extension but that is good toward the cost of the eventual return. I justify the charge by sitting down with them and whatever they have in terms of relevant information and making the best estimate I can of what they will owe and of course having them pay that. If it seems crystal clear that they will have a refund I tell them there is no need for the extension on a 1040 but of course entities still need to file extensions. I also make sure that their problem really is lack of something needed for me to do the return and not lack of ability to pay what they expect to owe the taxing agencies and/or me. In past years my answer to the question of what they owe me has been bank products but starting very soon I will instead take credit cards through Google. (If they don''t have a computer and an email address I will set them up a free hotmail address and operate my computer on their behalf to pay the bill. Google charges me twenty cents plus 2% of the amount for each transaction with no monthly fee and no setup fee.) If the problem is what they are going to owe the government they need an installment agreement not an extension. I have not yet become so busy as to need a cutoff date after which I only do extensions. I will put that in place when I need it

[JohnH]

Let me suggest a couple of other things to consider when preparing the extension.

Even if the taxpayer has an apparent refund, it's still wise to file an extension. You never know what may be missing from the info the taxpayer provides you at the last minute, and if it later turns out that the missing info changes a refund to a balance due, the taxpayer has a pretty good argument that you advised them they didn't need to file an extension when in fact they did. When they're staring at a 5-25% FTF penalty, they will conveniently forget that you told them you based the decision on info they provided at that time. I file extensions on everyone not expecting to file by the 15th, regardless of the expected outcome. Filing an unnecessary extension has no downside, and i can tell you there have been a few situations in which the client and I were able to say we were glad we had the extension in place after all.

If it is pretty clear that they will owe and can't pay in full, it's often still a good idea to file an extension. The instructions say they can file an extension and make a partial payment, so it's perfectly acceptable to do so. I try to get the estimate of the amount due correct, because an understatement there can potentially invalidate the extension, but even an extension showing $10K due and nothing paid is valid.

The reason it's often better to file the extension when they owe & can't pay is twofold. First of all, preparing the final return after the 15th allows you and the taxpayer time to reflect on all elements of the return to be sure everything which might reduce the tax liability has been taken into account. (I tell them they don't want me preparing the return under deadline pressure). Secondly, an installment agreement carries a fee - if the taxpayer has even a remote chance of getting the balance due together before Oct 15th, then they avoid that fee. The extension may also enable them to get together enough money to pay the balance due down below the automatic approval limits by Oct 15th, if they happen to fall in that situation. Filing the extension doesn't cost them any more in terms of interest and FTP penalties than an installment agreement, so it has no disadvantages.

You're smart to start thinking about setting a deadline for filing extensions on everything coming in the door. I usually set that date at around March 20, sometimes earlier. Anyone coming in after that date gets an extension as a precaution, even if we expect to get the return completed by Apr 15. Even if you aren't overly busy, one never knows when you or a family member might get sick, have an accident, etc. in early April or when a time-consuming big client project might show up due to another tax preparer finding themselves unable to complete their work for a client due to bad planning or adverse circumstances in their office. Setting a cutoff date in the early years before you need to do so will also enable you to test the water with your clients and begin to get a feel for those who don'd mind filing extensions and those who just don't want to consider it. This will help you avoid ever being in a reactive mode in the future.

[DaveO]

We don't prepare extensions without the at least the W-2's in hand. If you have those you are pretty sure they are coming back. Otherwise it's the blank pdf copy.

[erchess]

Thank you JohnH

The reason I have not encouraged people who appeared to be due refunds to do extensions on Forms 1040 is that I thought that if the extension did not come with money that turned out to be at least 90% of the tax due then the penalty and interest situation was the same as if you had not filed the extension.

[JohnH]

The 90% payment rule was the situation several years ago, but then IRS made it more lenient. I think they decided that if they can get people to file extensions, then at least they have gotten them started and into the system. It helps prevent someone who owes from just throwing up their hands and not filing, and IRS has been alerted that they are out there with a filign requirement. I believe it was a smart movve by IRS, along with their becoming much more cooperative with installment payments. They've probably collected much more money along the way, and their image is a little nicer than it was in the old days.

[ChEAr$]

Previous discussions on FTF penalty

I now remember. Back in May we discussed this, and JohnH had the rights of it then, too.

On another board (misc.taxes.moderated, a newsgroup) a fellow contributor wrote this
which I quote with his permission:

"I'm working strictly from fading memory here, but as for the when, I think
it was back when Fred "I never met a delinquent taxpayer I didn't like"
Goldberg was Commissioner or Asst. Secretary for Tax Policy, which would put
it during the Bush I administration. I distinctly remember throwing a
perfect fit when IRS gave up even the pretense of making the taxpayer come
up with a reasonable estimate and pay the balance due with the 4868.

As for the why, it was Goldberg who espoused the theory that people don't
comply only if they don't understand or IRS makes it too hard, and IRS
executives didn't get to be IRS executives by dissin' the boss. Compliance
never has recovered.

Policy statements were declassified in the 1970's, so someone with too much
time on his hands could probably dig up more specifics."

The next reply in the thread was from a (real!) still employed IRS man:

"http://www.irs.gov/irm/part1/index.html

See major section 1.2 Servicewide Policies and Authorities "

[JohnH]

Harlan:
May as well continue to beat this dead horse some more - I noticed that the person you quoted seemed to disapprove of the change in policy. Did he elaborate on his reasoning?

After all, it really isn't the preparer's job to pass judgement on the taxpayer's behavior or to punish the client when they don't live up to his/her standards; I see our job as being to assist the taxpayer in whatever manner is avaliable within the confines of the law. If that includes making a partial payment and kicking the can 6 months down the road while avoiding a FTF penalty, then that's part of my job as I see it. I would hope that if a taxpayer needed that preparer's assistance and he was opposed to helping them, then he would be honest and honorable enough to send them to someone else rather than torpedo his client.

If I understand the remainder of his post correctly, I also completely disagree with him concerning the compliance issue. I believe the current practice, coupled with more lenient payment arrangements, has probably served to increase collections overall. After all, if IRS has to find the delinquent taxpayer and THEN collect, their job becomes infinitely more difficult than if the "finding" part of the equation has been handled, as it is by the present system. I happen to believe it's a fairly sophisticated manner to ease people into the system when they might become so discouraged as to drop out and gamble on not being caught. The opportunity to avoid a 25% FTF penalty is a strong incentive to file an extension in hopes that the means to pay the tax will eventually materialize.

[ChEAr$]

Clarification maybe

Harlan:
May as well continue to beat this dead horse some more - I noticed that the person you quoted seemed to disapprove of the change in policy. Did he elaborate on his reasoning?

After all, it really isn't the preparer's job to pass judgement on the taxpayer's behavior or to punish the client when they don't live up to his/her standards; I see our job as being to assist the taxpayer in whatever manner is avaliable within the confines of the law. If that includes making a partial payment and kicking the can 6 months down the road while avoiding a FTF penalty, then that's part of my job as I see it. I would hope that if a taxpayer needed that preparer's assistance and he was opposed to helping them, then he would be honest and honorable enough to send them to someone else rather than torpedo his client.

(snipped for brevity)

While i can't really speak to his frame of mind or attitudes, I do seem to remember that
even though he is retired IRS, he now, or has in the past, only been associated with
the VITA program, thus outside the paid preparer community. So it would seem his
comments about Goldberg were out of frustrations at that time, relating to how the
change in policy affected his ability to do his job.

Your second paragraph as I've always believed, is right on the mark of course.
(ALTHOUGH.... you and I have been sorely tempted at times with PITA type clients.....
to..... let the chips fall where they may.

[Davc]

Filing an extension also leaves open the possibility of elections that must be made by the extended due date of the return.