Latest / The Accounting Podcast / Form 4868: Extension of Time To File U.S. Individual Income Tax Return (from the Federal Tax Updates podcast)

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Form 4868: Extension of Time To File U.S. Individual Income Tax Return (from the Federal Tax Updates podcast) · The Accounting Podcast

• Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding! Roger Harris: [00:00:07] Well, welcome back to another Federal Tax Update podcast. This is Roger Harris, and I'm joined, as always by Annie Schwab. Annie, what are we talking about today? Annie Schwab: [00:00:16] Well, we've got extensions on the agenda for today and a little bit of update from the IRS, some headline news. But for the most part, we're going to talk about extensions. We've made it through one deadline we are approaching just weeks away from the April 18th deadline. So that's on that's what's on the agenda. Talking about extensions. Roger Harris: [00:00:34] So if you're watching this after April the 18th, about half of this, you can ignore because everything we talked about is irrelevant. But I'm assuming most of the people will will hear it before then. But it's a good topic for next year if you've already passed April 18th. So that is true. All right. Where do you want to start? Annie Schwab: [00:00:52] Well, I'm going to say let's start with the IRC. We haven't had a podcast so far. We haven't talked about the IRC. So before we jump into extensions, Roger, do you want to give us sort of an update of where we stand on the employee retention credit? Roger Harris: [00:01:06] Yeah. And as you said, we've touched on on every podcast partly because it seems like every two weeks something new has come out. We get a little more information and then more questions are created. So let's talk about where we are today. And I think we have mentioned this at least on the previous podcast, if not all of them. There were some questions about, look, all of us know about the IRC mills that are out there and they're advertising huge amounts of money and they're actually being pretty aggressive in terms of what they're doing and it's putting us in the tax practitioner world I guess at risk is a good term in the sense that what if somebody comes to you and says, Hey, I got $200,000 of an employee retention credit and I'm going to say this word, and then, Annie, I'll ask you to help me define it. You know it's wrong now knowing something's wrong, believing something's wrong, thinking something's wrong is different. But the rules that we're going to talk about, talk about knowing. So how would you, first of all, define knowing something is wrong? Annie Schwab: [00:02:17] Sounds kind of an absolute. Like you are positive that you are you know, something is to be true or to be false, so to say. And that's a difficult word to you know, there's a lot of gray areas in tax law. There's facts and circumstances and there's things that are not black and white. And this is probably one of them. Unfortunately, the the practitioner community was asking for guidance. You know, tell us what to do. We are tax practitioners. Somebody comes to us. We're not sure if they really should have gotten it. Maybe they should have maybe, maybe less than what they got. Maybe who knows what the scenario is. And so the community was asking, you know, tell us, what do we have to document? What do we need to ask? What do we need to see? Are we responsible for it? Can we amend the returns? Can we not amend the returns? Right. What if we truly think it's wrong? Like, do you have to tell the client to go amend it? And so all of these sort of questions, what if scenarios came up? And because it is a lot of money and because the IRC mills have been aggressive, it's probably going to affect most tax practitioners this tax season. Roger Harris: [00:03:20] Right. And I've been trying to think of something where, you know, because knowing is hard, as you mentioned, you know, suspecting it's wrong, believing it's wrong, but knowing it's wrong is sometimes hard. But I read actually the IRS came out with something about an hour ago about this. And one of the things that they said the mills are doing is ignoring the fact that they got a PPP loan. The business did. So. Oh, goodness. So that I guess you'd be pretty safe to know, you know, what's wrong if if the credit that was generated ignored the fact that the wages for A PPP loan can't be used for IRC so that you know in that case it's pretty clear. Annie Schwab: [00:04:02] I would say that I would be confident. You know, you can't you can't double dip on the wages. So if the employee wages was used for the PPP, you certainly can't use it for the IRC. So that's, that's a scenario I would say that you would know it was incorrect. Roger Harris: [00:04:15] So here's what the IRS said and then we'll talk about what that means to us in a practical manner because it sounds pretty straightforward when you hear what they said until you start thinking about all the different places it could go. But what the IRS said and they rely on the rules that we've always been governed by, which is our reliance on third party information. That's always been an issue for practitioners is how much reliance can you put on a third party's information? What work do you have to do? And it really comes down to and it says you don't have to audit it, but you have to, you know, feel comfortable that it's accurate. You have to factor in what you know or should have known or a contrary fact like, hey, they didn't include the PPP loans. And so what the IRS has said is that in the case of the IRC, if you don't believe you can rely on the. Company or the facts that are presented to you. The fact that you're required to amend returns to reduce the wages. They're saying you should not amend those returns. They have used this terminology, which again leads to a lot of other questions that by amending the returns, you are perpetuating a false claim. So what their reasoning is, is you should not do something even though it's required by the law. If you know it's false, because then you are just playing into the, I guess the representation made by the IRC mill. So what they're saying is you should tell the client you're not going to amend the return. Obviously they want you to turn into the IRS, the name of the mill or the person or persons who did the claim. But you should not amend the return if you have reason to believe it's inaccurate that the credits were inaccurate that they received. Right. So that sounds like. Well, there's the answer, but. Annie Schwab: [00:06:13] Well, no, because that leads you to the next. So. So now it's incorrect. What are you going to do, send back the money? Well, yeah. So the client to to send it back, well, they don't even probably have it because they pay the IRC mill a fee for the preparation. So let's just say they got $100,000 in the credit. Well they paid the IRC mill 20,000. So now if they haven't spent the 80, which most probably have to send that back is almost unrealistic. Roger Harris: [00:06:41] Yeah, that's kind of what makes this unique in the tax world because we've run into this situation before. We the IRC has got such big dollars, we're acting like it's something different. But we've been faced many times where someone has come to us with something that's wrong and we're obligated as we are in all cases with the IRC to tell them it's wrong and tell them how they should fix it. And one of the fixes is to go back and amend the claim, if you will. Okay. But in this instance, to your point, Annie, most of these clients, if it was 100,000, they probably only got 80. If it was 200,000, they probably only got 160. So you're asking the taxpayer to give back the 100% when they only got 80% or maybe 75 or maybe they got 85. And it's just for most people, it's not a practical solution. But even if one of the tools that we usually use to kind of navigate through these problems, that maybe there are some that'll do it. I don't know too many people that are willing to do that. Annie Schwab: [00:07:43] Well, I don't know. But I mean, because the IRC mills are under such scrutiny, I bet some of them are closing shop. Even if you went back to them and said, you know that this was a false claim or this isn't, this is incorrect. I mean, I don't even know if you could locate them. Roger Harris: [00:07:58] Well, and that's what's interesting. You keep tying me up for something else. There was an article in accounting today where they went to the insurance companies and kind of posed this problem. You know, as a practitioner, you're faced with these IRC claims. And what their concern is, is these mills came out of nowhere to generate all the claims. As soon as they've milked everybody for all the money, they're going to be gone. So exactly when you send people back to these mills to fix the problem, they're nowhere to be found. And so, again, where does that leave us? I really don't care. I think the IRS should go after these mills heavily and and stop the craziness that they're creating. But what the insurance people have suggested is that you document your advice because the client's probably going to lose in here somehow. If it's truly not a valid claim, they're probably not going to be willing to, as we just said, pay back 100% when they only kept 80. They're probably not going to be able to find the IRC mills. The penalties and interest when those claims are rejected are going to be massive. So the insurance companies are saying be very specific in telling your clients in writing the problem they're in and what they should do. And some of the insurance companies are even suggested a separate engagement letter. Now, if you're not going to do any work, I don't know what the engagement letter does, but. Annie Schwab: [00:09:22] But it might be too late for that. Roger Harris: [00:09:24] Yeah, well, you're engaging, I guess. What are you sending an engagement letter to say I'm not going to do something? I mean, usually you get the engagement letter to actually do something, but. But it's going to put us in a bind when we're dealing in people who we don't know and trust. Now, if the IRC came from a fellow person in the industry that you trust, that you believe knew the rules and followed them properly, then sure, we need to amend the returns. We need to do all the work that the law requires us to do. It's these pop up mills that are going to create a problem. There's the other problem How what when you say that amending a return perpetuates a claim. What else could perpetuate the claim? So and we've just recently asked the IRS, you know, once you start asking for guidance, you just never stops because they give you some guidance and then you need more guidance, then you get more guidance. They just gave you. Annie Schwab: [00:10:20] Give me an example, Give me an FAQ. Give me something more. Roger Harris: [00:10:23] You know. Okay. Now this, because the question that came to mind when they put this guidance out, if amending a return perpetuates a claim, does deducting the fees for a claim that's wrong and deducting those fees, does that perpetuate the claim? Annie Schwab: [00:10:38] And that's probably 2020. That's 2022, 22. Roger Harris: [00:10:41] That's something you're seeing right now. So again, going back to our example, the client got $100,000 claim, they only got 80, so they had $20,000 fees. Well, they paid 20,000. And I say their chances of getting it back are slim and none. But if I deduct that fee, have I perpetuated the claim by deducting the fee that they shouldn't have paid because the claim wasn't any good. So we've asked for some guidance on that and I'm sure we'll get that guidance and it'll create some new questions that will keep going. So we're in kind of a catch 22 this filing season, which is, you know, we're in the homestretch, if you will. We've got as we record this, we've got a little less than 30 days to go. But these are real life problems. And we're actually using this as probably a good lead in into why extensions might be a wise thing for us this year, because time might give us more answers and we just don't want to do something that gets us in a bind. I think the IRS is going to be lenient with us if we're trying, I would imagine. But how's the client going to look at us? Because we're kind of damned if we do, damned if we don't. If we refuse to amend the return and the claim turns out to be valid, then the client is going to look at us and say, Well, I've got additional penalties and interest because you didn't do what the law said I had to do and you told me you wouldn't do it, and yet I should have done it. So, you know, it's really catching it from both ends. Roger Harris: [00:12:07] So yeah, yeah. This is a long way of leading into why one of the many reasons that extensions are there and they're valid is to kind of try to work through these kind of problems and, and see if we can get some guidance. But to wrap this up before we move into extensions, the one thing the IRS has said clearly is and again, let me stress that the standard of holding us to has always been our standard or a circular to third party information. What's what is our responsibility before we can just accept third party information? And so they're just going back to that and saying, if you're not comfortable and it's been defined as the reliance doesn't have to be more likely than not, but it's got to be one. And again, there's no way to measure this, but if you can defend your position and win it one out of three times, then it's considered reasonable. So can you rely on the information to a level of confidence that if you had this battle three times, you'd win it once? If you've done that, you've met your standard and you're okay. I don't know how you know that because this is new. Nobody, to my knowledge, fought it hard. But if you can't meet that standard, do not amend the returns. That's clear. Beyond that, we still have questions. And I'll go back now to what we said. The topic of this was will eventually be back to this topic as we talk about extensions, because time may solve some of these questions. But right now we don't have time. We got 28 more days or 29 more days, something like that. Annie Schwab: [00:13:45] Yeah. Roger Harris: [00:13:45] So I don't think we're going to get answers to all of our questions then, so probably not. There you go. That's the IRC discussion for today. Two weeks from now, when we do this again, they'll probably be something new, but we might have. Annie Schwab: [00:14:00] Something new, we. Roger Harris: [00:14:00] Might have something new. So let's get into what we said we were going to talk about, which is extensions and then we'll cover some other IRS updates. So Annie, why don't you kick off? I think everybody got a podcast or listening to this podcast knows what an extension is. I hope so, yes. Annie Schwab: [00:14:16] And today we're focusing on the individual, the personal extensions, the extension of the Form 1040, and the extensions have been around for a while. This is definitely not something new. In fact, some of you may remember when there used to be two extensions, a first and a second extension, Well, there's just one, and it's the form 4868. It allows for a six month extension, basically for nearly any reason or for any reason. And that's the federal tax return, although most states do piggyback on the federal. So just double check your state. Make sure some require you to file their own extension. But what it does is it just gives you an extra six months to file the return. Now, filing the return is a different word than filing and paying the balance due. So this is an extension of time. It is not an extension of time to pay, so to say. But there's there's a lot of good things that come with an extension. I mean, it's super easy to do. You don't even have to get signatures on it. It's free. You get the form wherever. You don't have to provide an explanation of why you're getting an extension. You just file the extension. You can do it on paper, you can file it. And like I said, a lot of the states, you know, accept that federal extension. So it's not it's not a bad thing. It doesn't it's not a negative thing. It doesn't look bad to you as a taxpayer. It doesn't necessarily look bad to you as a tax preparer. But anything else, Roger, anything? Well. Roger Harris: [00:15:45] I think we understand that. I think taxpayers don't understand what an extension is because we've all gotten the call. Hey, Annie, I'm going to be a little late. Can you just file an extension thinking that it's just sending a piece of paper and everything just goes on hold until I get around to it. But as you mentioned, it's not an extension of time to pay. So there are some rules as it relates to how much money has to go in if the goal is to avoid penalties and interest. Now, if you just want the IRS to go away till October 15th, you can just send the form in and they'll assume, you know what you're doing until you file the return. Then they'll realize, Well, I didn't make sense, so. Annie Schwab: [00:16:29] Right. I mean, there's late payment penalties, there's underpayment penalties, you know, and some of those apply if you owe money, obviously. But, you know, it doesn't mean that you're at higher risk for audit. No, you should definitely follow the extension, even if you don't have a dollar to send in, don't not file an extension just because you don't have the money to pay, even if it says on the extension that you're estimating you owe $10,000 but you can't send any in, still file the extension that will at least prevent the late filing penalty of the tax return. That'll give you your six months to gather the paperwork, which can be. Roger Harris: [00:17:06] More than the late payment. So it's really important. Annie Schwab: [00:17:09] Oh, yeah. Yeah. Roger Harris: [00:17:10] To get that form filed. Annie Schwab: [00:17:13] Yeah. And there are some clients who it generally makes sense, right? So if you're waiting on, let's say AK1 from a flow through entity, you technically you don't have what you need to file the return. An extension makes sense for you or I don't know, a brokerage statement that you know is incorrect and it's getting amended or 1099 R that had the wrong code in it or something. And so you're waiting on, let's say, some corrected version or modified version. And so, I mean, there are times when extensions make a lot of sense, even if you have everything you need right now and you're just waiting on something else, you should never just kind of estimate what you think that form is going to say and then file, because that's just going to cause a matching notice and more trouble down, down the way. So don't don't throw numbers on the tax return just because you don't have the actual form. Wait for the correct documentation, file the extension if need be, then complete the return before the extended deadline. Roger Harris: [00:18:10] Yeah. And as I said, clients, taxpayers don't seem to understand that there has to be some thought that goes into the extension. They just think I can be lazy, I can procrastinate. Annie Schwab: [00:18:23] An annual convention in October. Roger Harris: [00:18:25] Fine. Yeah. And don't let that burden fall on you if someone literally has not brought you one piece of paper and it's April the 17th and they call you and say, Hey, Annie, how about filing my extension? And you don't have anything to base it on? Then what are you going to do? Because we know that there has to be some thought that goes into it and we can talk about it in more detail. It doesn't have to be perfect, doesn't have to be exact. But the way I've always handled that and then, Annie, you tell me about you. If someone literally I've known them for years and I've done their return, but they haven't showed up and they call me on April 17th and say, Hey, file an extension. I'm going to say, Here's what I'm going to do. I'm going to send you the form because I don't have any idea how to put any numbers on it. Right, Right. And you put something on it and send it in by April the 18th in case this year, because I don't want the responsibility for the penalty because I made assumptions about what they would owe or wouldn't know. Annie Schwab: [00:19:26] And what they paid. Roger Harris: [00:19:28] In, what they paid in. And I know nothing. So what I have always done and then I'll let you talk about it, is in those instances where I have nothing to base it on, nothing, then I'll furnish them the form or forms. If the state requires one. And I'll say, you know, I don't know what to put on it other than your name and address. So you've got to get within 90% of what you think you're going to owe. So here's the forms. Make sure they get postmarked and keep a copy. Now. Yeah. Annie, would you do anything different? Annie Schwab: [00:20:01] Well, no, not necessarily. I mean, there's different scenarios. So, like, if I if this taxpayer knows that they're always get refunds and everything's the same. And so, you know, those kind of scenarios. So tax practitioners, we're slammed at this time. We there's a reason that we also file extensions. It's not just because our clients might be waiting on something, but as a tax practice owner, spreading the workload over through the summer months. I mean, one avoids mistakes. Everyone is tired If there's a really complex issue with a particular client and you need to do research on it, instead of spending hours and hours of research, put that one on extension, do an extension estimate, and then focus on that when you're not as busy. Maybe we were just talking about the SaaStr. If we're waiting on guidance about something, we need something more from the IRS to feel comfortable in filing the return, use the extension again, estimate complete the extension form and send it in. Like we said, if a taxpayer doesn't owe, then there's not going to be penalties and interest on that. I mean, there would you need to file the extension to meet the deadline, but there won't be additional penalties and interest on an amount owed because you don't owe anything. I mean, there have been times when I've called up family members or friends and been like, Hey, guys, I'm filing an extension for you. I didn't get around to it. You generally not going to owe any money, so there's not going to be any penalties and interest. I'll do it next week or the week after. It doesn't have to be six months. You could do the return the day after the deadline. So, I mean, there's different, different scenarios, you know, whose stuff's been sitting there the longest, Who maybe. Annie Schwab: [00:21:39] What if they hadn't paid you for the prior year? Well, I'm not going to make them a priority. You know, they still owe me for the tax preparation from the year before. And let me tell you, there are a couple of clients that if I file an extension and that means that they no longer want to use me as a tax preparer, I'm okay with that because there are a couple that are real pains and I'm okay with them if they ended up going somewhere else. So there's all kinds, you know, it's from the taxpayer side, it's from the tax practitioner side. But to get back to your point, one, for the partnerships and the S Corp, those are our flow through entities. Those extensions are just forms that extend the time they don't have to. They don't pay tax, right? So they don't have to estimate what their what their estimated liability would be. How much have you paid in through withholdings or estimated tax payments or refunds applied from previous years? They don't have to fill in those three lines that say how much tax do you have? How much have you paid in? Is there a refund? Are you expecting a refund or a balance due? So it's easy to just sort of file those extensions for the partnerships and the S corp's. But for individuals, it takes a little bit more thought. And Roger, you touched on it a little bit when you said that you do need to. Take some steps in calculating what to pay in order for that extension to not only be valid, but to avoid it being penalties and interest penalties and interest. Yeah. Roger Harris: [00:23:04] Yeah. I mean in theory, to do an extension properly, you should have all the information necessary to do the return. And maybe that's what they thought when they created extensions. Well, you got everything. You just don't have enough time, so you should be able to make a good guesstimate and file the extension until you get around. But the reality is, many instances, and you've touched on a lot of them, the reason the return is not done is because we don't have all the information to make a good estimate, but we do have kind of a 10% margin of error, if you will. So and I feel like. Annie Schwab: [00:23:39] That's pretty, pretty lenient. I don't think if it was 12% or 15% or something, I mean, we're talking about real blatant. Didn't give it any thought, couldn't even put on what they know, what they paid on their W-2. I mean that's kind of. Roger Harris: [00:23:55] But you do you do have to make some estimate and you've got to try to put some real thought into it so that you're. And again, a lot of this is just understanding your clients and your clients, understanding what an extension really means, and that if we just throw withholdings as what we think they're going to owe and they owe triple that, that that's there's going to be penalties in interest. And I think another thing you mentioned that I think sometimes we don't think about is use it for your own good. You know, if you just need to spread the work out, some extensions are they're there for a reason. Again, they're not looked down on. They don't increase your chances of audit. Think about who you're going to extend, make sure they're comfortable. Some taxpayers are petrified that an extension guarantees them an audit. And I don't care. Annie Schwab: [00:24:44] Some don't care at all. Roger Harris: [00:24:46] Yeah. I mean, first of all, nobody's getting audited, much less the people that file extension. So but they're petrified of it. So pick somebody else, you know, look for people who have no tax liability. So the guess is is right. I mean, put a little thought into it, but use it if necessary. If you get you have an illness in your staff or yourself or something comes up or the workload is just piling in at the last minute, don't kill yourself. Use the tools that are there. And extensions are a tool that is there, but do it with some thought. Think about what clients are okay with it. What clients can I best do an estimate with the most confidence in, You know, just think about it. Don't just start willy nilly throwing extensions out, you know, and. Annie Schwab: [00:25:34] Certainly don't go filing blanket extensions like you mentioned earlier. No, really, last ditch effort. I mean. Roger Harris: [00:25:41] Again, I don't you know, the client can do whatever they want to, but if I'm going to do it, I'm going to take some thought in terms of and again, everything comes back and we talked about it in make sure. I think one of the things we don't do well enough is communicate with clients. Silence from us gives the impression that doing anything is okay if right. So if you get that phone call, Hey, Annie, find me an extension and you don't say anything. You don't have any discussion. They're going to hang up and assume everything's okay and then they're going to be shocked in October. Well, not October, because they won't know the penalty in October when they file, but when they file in October. And then later on this big penalty shows up. Notice shows up whether and this is when you realize what your clients are friends and what are not. When that big penalty shows up 60 days later, they're going to blame it on you because they're going to tell you if you told them this, they would have gotten all the information. Now, the fact that they haven't gotten you all their information on time in the last ten years, they won't think about that, but they're going to blame it on you because you didn't make it a point. You didn't talk to them about it. You didn't drive home the message that I can do that you need it. But here's what I need or here's what the rules are and here's what you need to understand is going to happen If if this is not close, if this is just a stall tactic or whatever, and it shouldn't be because you don't have the money to pay because there's other ways to deal with that. Annie Schwab: [00:27:12] Yeah. Yeah. And you're right, there are penalties associated. And I did look these up just to double check before we were talking today. But there's a failure to file, a failure to pay and an underpayment penalty. Those are I mean, there's lots of other types of penalties, but these are the three most common. You know, you're not into fraud or so you've got the failure to file penalty, which you would have to pay 5% of the amount due per month. And that has it maxes out at like 25% or something, right? Yeah. And then you've got the failure to pay and that's 0.5% of the unpaid balance again per month up to. 95%. And then there's the underpayment penalty, meaning you didn't pay enough in and that's at the federal interest rates. They're applied for the number of days late. So there's three things to consider there. Now, the failure to file, that's that's easy. You just file the extension and then meet the extension deadline. That one's relatively easy to avoid. Failure to pay is you didn't send you know, you didn't pay the balance due. So as you're thinking about extensions, they have what they call safe harbors, which at least, let's say, protect you from the time of the extension until you file the return if you pay enough in. So you've got the 90% rule, which is you pay 90% of the tax on the current year return. So if we're talking about this year, if you estimated your income and your tax liability and what you paid in when you file the extension, as long as you send in 90% of the amount of the tax liability on the current year return, you're okay 100% from the prior year return. So if you looked at your 2021 return and you looked at the total tax liability, as long as you pay in 100% of that, then you're okay. Now, if your AGI on last year was over 150,000, they moved that 100% to 110%. So there's there's a there's some safe harbors, let's say, that can assist you when you're trying to calculate what you need to send in with extension. Roger Harris: [00:29:23] And remember these penalties, each of those safe harbors apply to different things. One is with estimated tax ones with the extension. So, you know, think through all this, you know, but you know, really the only time I think an extension is a negative is when it's a signal that you and your firm are just. Not with it, that the only reason these forms are being filed is because you just can't get around to getting your work done. You have everything you need. You've had it for an extended period of time, you know, because again, we hear these stories. I took everything to my tax preparer in February and they still filed an extension. Now. Again, short of an extraordinary circumstance, you know, natural disaster health or something. Extensions can send the wrong message because a lot of people don't want it. They may have refunds coming and they want their money. Annie Schwab: [00:30:15] They want their money. Roger Harris: [00:30:17] And so don't allow extensions to send a negative message about your business. But other than that, there are A They are a very common and useful tool and we should use them, but use them wisely and smartly and make sure our clients are understanding what it means to file an extension. It doesn't mean you're going to get an audit. It doesn't even mean you'll get a penalty. But there are rules you have to follow. Annie Schwab: [00:30:47] Yeah, and it's not uncommon that you get a notice for penalties. And the IRS does. There's something called the first time abatement penalty. There's the reasonable cause. So, I mean, even with penalties and interest, you know, as long general early, you might be able to respond to a notice and say, you know, our failure to file or to pay or make deposits, you know, this is the first time we've ever missed a deadline or underpayment or something like that. There's a first time abatement. Yeah, first time that's there. And then obviously reasonable cause, I mean, if you can explain why the situation occurred, generally those are more health issues or relied on a professional and got poor advice or something like that. Right. Roger Harris: [00:31:33] Another kind of interesting scenario that leads into another thing we need to talk about is you get the return done. And you show it and they owe $30,000 and they go, I don't have $30,000 for an extension, so I don't have to pay it till October. That's not what the extension works for. But again, that's the taxpayers mentality that all I do when I file the extension is push everything back to October 15th with no consequences of doing so. So what we need to talk about now is in those situations, because we are going to have them where people get their returns done. It's not. They need an extension because we've got the information, but they can't pay the tax. So what do we do in that situation? Because again, just filing an extension and kicking the can down the road to October 15th is going to make that balance do go higher. It's not going to make it go away. And it's not the IRS just saying, well, okay, wish we would have known this earlier, but okay. Well, so talk about some things that we can do in that situation. If it's really not about the information, it's really not about the return being prepared. I just can't pay it. Annie Schwab: [00:32:47] Yeah, and the IRS is aware of that and has been dealing with that for years and years. And they have payment plans, installment agreements. There's some that are for personal and for business. Some, you know, have different timeframes. Know if you think you can pay it back in the short term and the long term within 180 days, all of these things come into play. But there's a there's an automatic online application that you can just jump online if you owe $50,000 or less. And that includes the tax and the penalty penalties and interest and that and that. And you've filed all the tax returns. You can get an installment agreement. A short term version of that would be 180 days, and that is if you owe 100,000 in combined tax penalties and interest. So there's thresholds for the amount that you owe. There's timeline for when you think you can pay. There's, you know, they can auto take it out of your account. You can write checks, you can negotiate different terms if need be. And then there's also the option for offering compromise. So that's another way to to pay your your balance due. Now, that's way more complicated. You have to submit lots of documentation. There's a pre filing pre-qualifier tool on the IRS. So you know, it's more of like something has happened. You don't even have assets that could be used to support your your balance due, I guess. So. I mean, they try to help you out. I'm not saying that everybody is going to get this automatic application, but, you know, getting an installment agreement and getting into a payment agreement is one way to go. And at least it stops the the notices from coming and the penalties and interest from increasing. Roger Harris: [00:34:37] And there are some fees. You know, it's not free. There are I mean, not paying your taxes on time has cost. There is the form and I'm sure it's an almost every tax software out there that you can actually send with the return for an installment agreement. Again, if you've got people that owe hundreds of thousands of dollars, it's different than if somebody owes 10,000 and can't pay it. You can literally file with the return the installment agreement form and set up a payment plan. You're going to have to give them right there the information. There's a fee. But so the point being is don't let someone who can't pay it think that extending and filing does anything but make the problem worse. Deal with the issue of, well, how much can you pay? When can you pay it? How much can you afford? I mean, obviously you're going to have to pay it. You're not just going to I mean, I guess you could if you thought you had an offer in compromise reason, you know, that was probably the precursor to the mills is all the people on TV saying they can get you out for $0.10 on the dollar or something like that. Annie Schwab: [00:35:36] I still hear those. Roger Harris: [00:35:38] Yeah, they're still out there. But for the most part, our clients have tools to be able to pay the taxes with the return and go ahead and deal with it. Now, Annie mentioned those online tools. Those are available as well. If you're in the collection process and you've got past due balances, there are it's it's what, 50,000 for an individual and 25 for business. So that's right. If you're dealing with a client that has some past due taxes and again including penalty and interest, those online tools are not just available when you file the return, they're available to any individual who's gotten behind. Now you can get above 50,000, but you're going to have to document it and you're going to have to negotiate with the IRS and do those sorts of things. I think you. Annie Schwab: [00:36:23] Have to send in some additional documentation. Yeah, there's more, but it's a little bit more complex. But and if you this is the type of thing like let's say you owe for 2020 21 and now 22, they'll combine all of that together, update the payment plan. So, you know, even if a client comes to you and they're already on an existing plan, on an existing payment plan with the IRS, you know, you can still work with that plan and combine any balances due. Yeah. Roger Harris: [00:36:53] So again, use extensions when they're necessary, when they're helpful both for the taxpayer or the practitioner. Put some thought into it. Don't just mass send out blank extensions. Don't confuse extensions with paying because there's additional tools for paying you. Annie Schwab: [00:37:13] Explain that to the clients. Communicate with the clients so that they know what you're doing and why you need it and why it matters. Why do you need the information? Roger Harris: [00:37:21] Yeah, it's it's the discussions that we have with clients that makes us different. You know, if all you do is take numbers and put them on a tax form, you're just a human calculator. You know, that's really all you are because you're just plugging numbers into software and calculating. It's these discussions and these making our clients knowledgeable taxpayers that should make us better at what we do and more value to our customers. So again, use extensions when extensions need to be used, use the payment tools and plans when they can be used. Use them in combination with each other. But talk to clients. We talked about the IRC, explain the issue to them. You know they trust us, they rely on us. But that's no good if we never talk to them and we just crunch numbers and give them completed documents and assume all this stuff that we know they know because they don't. Yeah, if they did, they wouldn't be coming to you. So. Annie Schwab: [00:38:17] And take a deep breath, move slow, avoid errors, look at your client list, look at your staff's capability capacity, and then figure out. Roger Harris: [00:38:29] What you can do. And and if one thing COVID taught us the last few years, it's the tax season's never end. So why not use extensions? That's all I heard during tax season never ends. Tax season never ends well. Annie Schwab: [00:38:41] This is the longest tax season ever, is what I heard. Roger Harris: [00:38:44] It's not over yet. Yeah. Yeah. So if you've gotten used to that and use extensions and just spread it out, it doesn't have to end April 18th. It can. It can end June 18th. It can end July 18th. That's it's up to you. Don't kill yourself. You know, go you know, use the tools at your disposal to make your life better and help clients. So hopefully you heard this and it'll make your life a little easier before the end of this filing. It is kind of nice, though, to know April 18th means the end of something, but I don't know if that's it feels. Annie Schwab: [00:39:17] Good to get to that deadline, but then you still look over and you've got a pile of stuff still to get through. But yeah, something. Roger Harris: [00:39:26] You said earlier because you still get this from some people, they still think there's that second extension. So when it gets to October 15th, they'll call you and say, Hey, I need the second extension. Well, yeah, doesn't exist anymore. So. So don't wait for that one. I know. Anything else on extensions and pain. Yeah. Annie Schwab: [00:39:43] Oh on extensions and payments. No, I think. I think we covered that reminder to check your states with your extension. They can be filed. Make sure that the payments get mailed. If you're doing it by mail, check the address. Make sure it goes to the right place. Keep a copy for your records. Make sure that the client has a copy for theirs. No, I mean, I think we. I think we hit the the basics. Yeah. Roger Harris: [00:40:07] I think if you've done if you've been in this business for any length of time, this is something you've, you've done. It's not this isn't anything new, but maybe put a different approach to it and put a little more thought into it and use it to your benefit and make your clients tax season and your tax season maybe a little better. As always, we we try to leave time at the end to kind of talk about stuff that has come out. Some of it has come out within the last couple of weeks since we did the last podcast. Some we've just been sitting on. So where do you want to start on news from the IRS? Annie Schwab: [00:40:41] I guess let's start with the information returns. The E filing requirements for the information returns beginning at well on January of 2024. So the beginning of the year, all tax practitioners who file more than ten informational returns, I think that number was 250. Yeah, 250 that is now decreased all the way to ten. And that's not like ten W-2s or ten 1099. It's in the whole series. So if you do five W-2s and eight, 1099, well, you pass the threshold you need to file. So that's going to be a change that just consider it, keep it in the back of your mind. Think about your your business processes. That is something that you probably need to give some thought to as you as we approach the end of the year. Roger Harris: [00:41:30] Yeah, because this is again, the continuation of trying to get as much of information into the IRS electronically as they can because as we saw during COVID, when paper comes in, it can get backlogged in good times. You know, it's awful during a pandemic, but even in good times, too much paper. So we're going to see this continued pressure to do things electronically. So it's a pretty big jump to go from 250 to 10. And there's a lot of tools. The IRS has a tool for e-filing 1099 There's a lot of good products out there for 1099 W-2s. Just don't wait until December to start thinking about this. This may be a good time if you've got clients who. Need to switch to a payroll service like an ADP, Paychex or whatever. Gusto, all those places where they take on the responsibility. But if you are responsible currently for preparing those W-2s or 1090 nines come January, you're probably going to need to do those things electronically if you've never done that before. It's going to take you a while to figure it out. Be set up, be organized. So just don't wait till the last minute. Get through tax season and then maybe look at your client list and decide who this is going to impact and start that discussion with them. While you have plenty of time. Annie Schwab: [00:42:50] Communicate before it's too late to make the change to implement the new steps, the process, and with your staff too. It might require you to do some training with your staff or invest in some other technology or software and just get. Roger Harris: [00:43:02] Prepared for these kinds of things are, you know, change. Most people don't like change, but hey, it's happening. Annie Schwab: [00:43:09] It happens. Roger Harris: [00:43:10] What about RMDs? Annie Schwab: [00:43:12] Oh, RMDs. Yeah. No, we can go. We can go there. It's just that April 1st, so it's coming up just in a couple of days. Those taxpayers who reach age 72 during 2022, there's a special rule that allows them to take their first distribution in April of 2023, and then they'll take the next one at the end of the year. So it's kind of weird. It's just for those it's a two payment and a single year for those who reach 72 during 2022. So the April 1st RMD deadline applies to the required distributions for the first year and then all later years are going to be on December 31st. So if you've got a client who's asking questions about when they need to take that distribution and they reached age 72 during 2022, just remember, there are special rules for that particular. Roger Harris: [00:44:05] Situation and you may have to RMDs in 2024 if you defer the 2023 into 2024. But senseless plug for our last podcast, go back and listen to our discussion of the Secure Act 2.0 because these RMD rules are changing. So but yes, if they're turning 72 this year, they can kick it into next year, but they still are required to take one for next year. So there are some planning opportunities if those RMDs are substantial in amounts. Mr.. Whether you're sure you're better off to kick it into next year and have to versus take one before the December of this year and then take the 2024 next year? Annie Schwab: [00:44:47] Yeah, next year. Double up. Right. Roger Harris: [00:44:49] Don't double up or double up whatever's in your right. Annie Schwab: [00:44:52] Wherever you go, that's easier to say. Roger Harris: [00:44:54] Yeah, you can double up or you can not. What else? I mean. Annie Schwab: [00:44:58] So I meant to mention earlier when we were talking about, you know, underpayment and penalties and interest and getting notices from the IRS, many taxpayers probably don't know that there's something called the Taxpayer's Bill of Rights. Right. And there's ten of them. And basically it's, you know, the right to be informed, the right to privacy, the the right to a fair and just tax system. And they go on. But it's kind of interesting. If you've never gone and read them, you can just go to the IRS website, type in taxpayers bill of rights and they'll list the ten of them. And and it's something that I feel like tax practitioners probably know, but probably have never communicated, you know, that that your clients have such things as Bill of rights. So I don't know. I thought that was kind of interesting. I wanted to mention that. Roger Harris: [00:45:46] Yeah, no, it is interesting. And particularly in areas where maybe you're helping a client who owes the IRS money, you know, we think because we know how to prepare taxes and we know how to represent clients when they owe money collection and representation. Rules are very different than knowing how to prepare the return originally. And it's important to sometime know what those rights are in a particularly in a collection environment where you know what they can do, what they what they what the IRS can do, what the IRS can't do, what rights the taxpayer has, you know, all those sorts of things. So, yeah, it's important to to understand, again, particularly in the collection realm of what we do, what rights the taxpayers have, because they do have them. Annie Schwab: [00:46:35] They do, They do. And I think it's important for the for your clients to know that. I really do. Yeah. What else? Um, so just let's see a couple of reminders I can think of. Be sure to use that. Where's my refund tool? Refunds are generally issued within the 21 days. There are certain types of returns that maybe take longer, you know, for identity theft factors or maybe they're earned income credit or additional child tax credit. Those kinds of things sometimes take longer. However, 21 days seems to be realistic. Where's my refund is out there. So that's a great place to go for, you know, first stop there and that'll show you it has three different stages. So when you log in, you put social and what you owe and blah blah, blah. How do you file your filing status? It'll say, you know, return received. And then the next step would be, you know, refund approved and then refund sent. So you can kind of see the progress of the processing of the tax return. So, you know, I don't know if you've got that out on your website or if you tell your clients about it. But yeah, probably prevents them from giving you a phone call. Roger Harris: [00:47:38] Yeah, put it on your website. Annie Schwab: [00:47:39] Where is it? Where is it? Roger Harris: [00:47:41] And a lot of states have the same thing. Yeah, they do. And so when they're going to your website to find your phone number, to call you, to ask you where the hell is my refund, you know, right next to your phone number. Maybe it should be a little thing if you're calling to find out where your refund, go here instead. Because like, here, that's all I'm going to do if you call me. Annie Schwab: [00:47:59] Yeah. I mean, that's all really we can do other than getting on the phone and sitting on hold and all of that. Roger Harris: [00:48:04] So yeah. So make sure your website is up to date. Annie Schwab: [00:48:07] Exactly. Exactly. Um, Roger, I think that's all I've got. Unless there's something that came across your desk or. Roger Harris: [00:48:15] Well, I'm going to put a tease in. I don't know when we're going to talk about this because there's still some we're still seems like we're waiting on guidance on a lot of things. But I don't think we can do polls on a podcast because we wouldn't know what you answered. Yeah, no, I'm going to gamble that most of the people listening to this podcast do not know what the Corporate Transparency Act of 2020 is. I'll have to admit that until a few weeks ago I really wasn't sure what it was. But if you work with small businesses, there is something in this act that's going to impact all of this is the this is the first bill like this where I saw the exemption is for large companies, not small. We tend to think that a lot of things happens that are small or small businesses. Well, they're exempt because they're small. Actually, this is the opposite. You're exempt from these rules if you're large, not if you're small. That's a T, So you'll listen to a future podcast when we talk about it because we are still waiting for some guidance. But I can say this. By the next year. Fortunately, we've got the rest of this year it's going to impact just about 100% of your small businesses. And if you particularly if you are involved in helping form companies, like if you set up LLCs or set up corporations for your clients, this is really going to impact you. So you can go do some research on your own. You can wait till any come and talk about it, but we're trying to wait. We were supposed to have guidance, more guidance on it than we do, so we're going to kind of hold off. But just a little tease. The Corporate Transparency Act of 2020 and we're in, what, 2023? And we still don't have all the rules yet. Annie Schwab: [00:49:58] So we don't have all the rules. And it doesn't take effect until the beginning of next year. But but you can't wait till then for you would think three. Roger Harris: [00:50:05] Years would have been enough time to come up with all the rules. But now we have been busy. We're going to cram them all into the end of 2023. So we'll come back with that. We'll we'll obviously continue to come back with podcast. We hope you are enjoying these. We hope you'll tell your friends about it. You know, as you say, we're available wherever you get your podcast. So. That's right. So we hope you'll keep listening and and send us ideas if there's topics you'd like us to consider. You know, we'll if we are qualified, we'll do it. If not, we won't. Anything else? Annie? We done? Speaker3: [00:50:44] No, that's. That's a lot of information. Annie Schwab: [00:50:46] So hope you enjoyed it. Hope to see you on another one. Roger Harris: [00:50:49] Yeah. Hang in there. Depending on when you're listening to this. Either congratulations you made it or hang in there for a few more days. It's almost over. Annie Schwab: [00:50:56] So it's almost over. Roger Harris: [00:50:58] Well, Annie, as always, pleasure to do this with you. Thank you for all you do. Annie does all the work on this, so if you like what we're talking about, she gets all the credit. Annie Schwab: [00:51:09] Thank you, Roger. It's a pleasure to do this. Roger Harris: [00:51:11] All right. Well, again, thanks for listening. Again, join us again on another federal Tax update podcast and we will see you in a couple of weeks.