Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Advantages of filing an extension

- by Alan Duvall 

Published in Dayton Daily News March 5, 2006  

Procrastinators of the world celebrate – the IRS now bestows upon individuals and companies the right to automatically extend the filing of income tax returns an extra six months. 

So individuals can now push the dreaded April 15 tax deadline to October 15 with the filing of Form 4868.  Likewise, corporations can delay March 15 filing dates to September 15 via Form 7004. 

Unfortunately, a postponement of return filing does not correspondingly postpone payment of taxes, which must be timely paid by the original due date to avoid penalties and interest. 

And, contrary to the popular myth, there is no statistical correlation between return extensions and IRS audits.  Extensions alone do not trigger audits. 

However, the statute of limitations does grant the IRS three years from the later of due date or actual filing to audit taxpayer returns.  Thus, a filing extension inevitably extends the period of audit exposure an additional six months. 

Many taxpayers simply use the extension option to allow extra time to gather information for return preparation. 

But, there can also be financial benefits to return extensions. 

The payment of certain company pension obligations can be delayed with an extension. 

Such extensions not only aid cash flow – they also allow companies the benefit of hindsight in assessing retirement funding. 

For example, assume a company has an elective profit-sharing plan for the 2005.  Normally, the plan must be funded by March 15, 2006 (corporate due date) to generate a 2005 deduction. 

A six-month filing extension will enable the corporation six additional months to fund the pension and retain a 2005 deduction, true even if the return is actually filed as early as March 16.  The company will be eight and a half months into the succeeding year before it need determine the affordability of a prior year pension contribution.  

Last minute filers utilizing tax preparation companies have another justification for extensions.  The final weeks of filing season are embattled ones for professionals besieged by frantic clients and reeling from pressure laden months of return processing.  Efficient return preparation is not maximized by late filing requests. 

Not convinced?  Simply tour a CPA firm the week before April 15 to witness bleary-eyed professionals painfully staggering down hallways lovingly caressing gargantuan mugs of steaming coffee.   

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.