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Tax penalty relief for some who file for an extension

It's been, and still is, a screwy tax filing season for everyone -- taxpayers, the Internal Revenue Service, tax preparers.

The main problem is that -- and I apologize for repeating this yet again, but… -- Congress didn't do its job properly.

By putting off critical 2012 tax legislation all of last year and then finally rolling it into the fiscal cliff bill, formally known as the American Taxpayer Relief Act (ATRA), in early January, Representatives and Senators placed huge roadblocks in this year's filing season and system. (Be sure to let your members of Congress know what you think of what they did, now and at election time.)

Football referee with penalty flagAs we waited for the IRS to play catch up and update forms and its computer system, many of us came to the frustrating realization that we would have to file for an extension.

That means that IRS likely will be processing a lot more returns than usual after the April 15 deadline.

Penalty relief for late form filers: And the tax agency has announced it will not penalize some of those many taxpayers who file for an extension, but who don't pay a sufficient amount of their due tax when they submit the request via Form 4868.

Remember that the automatic extension to file is six extra months to get the tax forms in, not six extra months to pay any tax you owe.

So when you send in Form 4868, you also need to send in a good estimate of what you expect your final tax bill will be.

If you don't send in enough to cover your eventual tax bill, you'll be charged interest on the amount unpaid as well as a late-payment penalty, normally 0.5 percent per month.

But if you are seeking more time to file this year because you had to wait for some of the forms to be updated per ATRA changes, then you're off the tax penalty hook if you underpay when you get the extension.

The IRS announced today that the penalty relief will be automatically granted to folks whose returns include any of the 31 forms that were delayed. They are:

  1. Form 3800, General Business Credit
  2. Form 4136, Credit for Federal Tax Paid on Fuels
  3. Form 4562, Depreciation and Amortization
  4. Form 5074 Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands
  5. Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations
  6. Form 5695, Residential Energy Credits
  7. Form 5735, American Samoa Economic Development Credit 
  8. Form 5884, Work Opportunity Credit
  9. Form 6478, Credit for Alcohol Used as Fuel
  10. Form 6765, Credit for Increasing Research Activities
  11. Form 8396, Mortgage Interest Credit
  12. Form 8582, Passive Activity Loss Limitations
  13. Form 8820, Orphan Drug Credit
  14. Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit
  15. Form 8839, Qualified Adoption Expenses
  16. Form 8844, Empowerment Zone and Renewal Community Employment Credit
  17. Form 8845, Indian Employment Credit
  18. Form 8859, District of Columbia First-Time Homebuyer Credit
  19. Form 8863, Education Credits
  20. Form 8864, Biodiesel and Renewable Diesel Fuels Credit
  21. Form 8874, New Markets Credits
  22. Form 8900, Qualified Railroad Track Maintenance Credit
  23. Form 8903, Domestic Production Activities Deduction
  24. Form 8908, Energy Efficient Home Credit
  25. Form 8909, Energy Efficient Appliance Credit
  26. Form 8910, Alternative Motor Vehicle Credit
  27. Form 8911, Alternative Fuel Vehicle Refueling Property Credit
  28. Form 8912, Credit to Holders of Tax Credit Bonds
  29. Form 8923, Mine Rescue Team Training Credit
  30. Form 8932, Credit for Employer Differential Wage Payments
  31. Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit

Form 8863, Education Credits, and Form 4562, Depreciation and Amortization, became available in mid-February, althouth many folks claiming the American Opportunity education tax credit have since had other filing problems and delays.

The other 29 forms weren't available until early March.

Again, the IRS has decided not to run the penalty meter for filers with these forms and these filers only.

But to get that consideration, you must still file for an extension by April 15.

And you still must send in a good faith estimate of your due tax to show the IRS that, in its words, you made a "good faith effort" to property estimate your tax bill.

Getting the penalty abated: If you don't send in enough money with your Form 4868, you will get a penalty notice.

Wait. Don't freak. Didn't you just read that you won't owe a penalty?

Yes, if you filed one (or more) of the 31 late-released forms listed above, the IRS is still going to erase the penalty amount included in that assessment total. But you have to tell them to do so.

When you respond to the notice, also send the IRS a letter describing your eligibility for the penalty relief; that is, tell the agency which of the qualifying forms were part of your 2012 tax return. Also be sure to cite IRS Notice 2013-24 in your assessment letter response/explanation.

The penalty relief is pretty nice of the IRS, but you really should try to make as close an estimate as possible of your final tax bill and send that amount in with your Form 4868.

Sure, you might be able to escape any tax underpayment penalty charge this year, but interest charges will continue to accrue on any tax that you didn't pay by April 15. 

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