It's OK to file for an extension

By Jeff Schnepper

What happens now that it's April and you know you can't file your income tax return on time?

You could simply ignore the problem and hope the Internal Revenue Service doesn't notice. Not a good idea. If you have filed before, the IRS will notice, and you will probably pay penalties.

Or you could panic.

Or you could use Schnepper's easy, short-term fix: File for an extension. It's a snap.

Form 4868 offers a 6-month reprieve

The IRS has a simple form that allows you an automatic six-month extension to file your taxes. It's Form 4868 (.pdf file), and it's easy to complete -- even without an accountant.

The form starts by asking for your name, address and Social Security number. It asks you to estimate your tax liability and send any balance due. If you make this payment and cover at least 90% of your real liability, you win. You won't owe a late filing or late payment penalty.

You can also pick the form up at any IRS office or order it toll-free at 800-TAX-FORM (800-829-3676). When you fill out the form, you will need some data from your 2007 return.

If you're using tax-preparation software at home, you can file by computer and receive an acknowledgement by e-mail.

You must file it by the regular due date of your return. It is an automatic extension. You don't have to give the IRS any reason. You can get it even if the only reason you haven't filed is you were lazy or didn't want to think about it.

Form 4868 gives you until Oct. 15 to complete and send in your return. And, regardless of the form, if you think you owe money to the government, you must send it in by April 15.

You can ask for only one extension. So you really do have to file by Oct. 15.

The pain of not filing

It can hurt if you don't file for the extension. The IRS can hit you with a late-filing penalty of 5% of the tax not paid by the due date for each month or part of a month your return is late. Generally, the maximum penalty is 25%. But if your return is more than 60 days late, the minimum penalty is $100 or the balance of the tax due on your return, whichever is smaller.On top of the penalty for filing late, there is a penalty for paying late. This is usually 0.5% of any tax not paid by the due date. It is charged for part of a month that the tax is unpaid. The maximum penalty is 25%.

The late-payment penalty can be excused if you have and can show "reasonable cause" for not paying on time. You are considered to have reasonable cause if at least 90% of your actual liability is paid before the regular due date of your return through withholding or estimated tax payments.

However, you'll owe interest on any tax not paid by the due date of your return. This interest runs until you pay the tax. Even if you have a good reason for not paying on time, you'll still owe the interest.

After 3 years, your tax return stands

You should also be aware that the statute of limitations runs from the date you actually file, not the original due date. The statute of limitations is a law that limits the amount of time the IRS has to audit your return.

Normally, that is three years from the due date of the return. So, for your 2006 return, filed in 2007, the deadline is April 15, 2010. (Likewise, your deadline for amending your 2005 return is April 15, 2009.)

If the IRS doesn't audit you within that three-year period, the government is legally prohibited from challenging your deductions. If the IRS can prove you committed fraud, all bets are off. Here, the burden of proof is on the IRS. It must prove that you intended to cheat -- a difficult burden. If you file an extension, the statute of limitations doesn't begin until the return is actually filed.

If you're out of the country

If you're a U.S. citizen or resident and were out of the country, you automatically get a two-month extension to file your return without filing Form 4868. But you still have to file by Oct. 15. "Out of the country" means either:

• You live outside the United States and Puerto Rico and your main place of work is outside the U.S. and Puerto Rico.

• You're in the military or naval service outside the U.S.

For more information, see Publication 54 (.pdf form). You may be able to get an extension beyond Oct. 15.

Updated April 7, 2009