Practice and Procedure: ‘Automatic’ Extensions Often Require Effort

As the 2018 tax filing season gets underway—the IRS began accepting income tax returns Jan. 29—taxpayers and preparers should begin assessing whether they will be able to file by the deadline or whether they will need to request a filing extension. This year’s federal filing deadline for individual taxpayers is April 17, because April 15 falls on a Sunday and the District of Columbia observes Emancipation Day on April 16. Most states, but not all, will follow suit.

Those who do file extensions should be aware that extension requirements vary from state to state and range from nonexistent or minimal, to stringent. Many states assert that they grant individual taxpayers an “automatic” filing extension, but conditions associated with these extensions differ.

In some states, like Alabama, automatic means that there is no application requirement nor any other requirement associated with obtaining a filing extension. Some states require that taxpayers file a state extension application, while others require that taxpayers obtain a federal filing extension to qualify for a state extension, while yet others impose tax payment conditions.

California grants individual taxpayers an automatic filing extension of six months. The taxpayer is not required to file an application requesting the extension, and while they specify that the filing extension is not a payment extension, California does not invalidate the extension of taxpayers who have not paid the full tax due by the original due date.

Similarly, Illinois also grants an automatic extension wherein the taxpayer is not required to file an application. While full payment of tax is due by the unextended due date, an underpayment will not invalidate the filing extension. Taxpayers will, however, be assessed underpayment penalties and interest.

North Carolina requires that individual taxpayers file an extension application by the original return due date, but then applies the same standard as Illinois, where full payment of tax is due by the unextended due date but nonpayment of tax due will not invalidate the filing extension.

New York grants a six-month filing extension to taxpayers and describes it as “automatic”; however, individual taxpayers must apply for the extension by the original return due date and must pay the full amount of estimated tax due in order to obtain the extension. Hawaii also stipulates that taxpayers will only be granted an automatic filing extension if they have paid all of the estimated tax due by the original due date, but no extension application is required unless the taxpayer needs to make a tax payment. Massachusetts stipulates that individual taxpayers must have paid at least 80 percent of the tax due by the original due date to be granted a filing extension. Taxpayers are not required to take any action to obtain the filing extension unless a tax payment is required.

In Pennsylvania, taxpayers that have a federal filing extension are automatically granted a state filing extension without application. Those who do not have a federal extension or owe Pennsylvania tax must file an extension application.

Taxpayers and tax preparers should review state extension guidelines closely in their relevant states to ensure they are in compliance and avoid dreaded penalties and interest.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Why do states attach conditions to their “automatic” extension, and is this a worthwhile strategy?

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