The Skinny On U.S. Tax Filing Extensions

Be careful, obtaining those is a slippery slope to more, and now serious, procrastination
BY: ORLANDO GOTAY

I write this note just after the federal income tax return filing deadline of April 18, 2016, specifically for expats who did not file by then. In case you didn’t notice, this year’s regular filing deadline was off by three days due to DC’s Emancipation Day holiday. Yeah, we never heard of it either, but we’ll take another holiday.

Those who reside outside the United States (and Puerto Rico) as of the filing deadline qualify for an automatic two month extension to file a return and to pay tax due.  Either spouse filing a joint return qualifies for the extension, but it runs only to June 30.  If you file a return within that time and pay whatever you owe, you will not be subject to the failure to file or failure to pay penalties.  However, the IRS will calculate interest due on the tax  from April 18 onward and send you a bill.

IRS rules say that the taxpayer must attach a statement to the return, saying that the taxpayer qualifies for the automatic extension.  I recommend writing those out in RED LETTERS at the top the return:  “TAXPAYER RESIDES OUTSIDE THE U.S.—AUTOMATIC EXTENSION” or words to that effect.

Normal taxpayers are entitled to a six month extension of time to file, but not to pay.  Expats can get that too, by filing Form 4868 within the automatic extension window, on or before June 30. But it runs concurrently with the automatic extension, so an expat who applies gets en extension to file to October 15.  They do not stack up.

If a taxpayer needs additional time, there is yet another two month extension available by writing a letter to the Austin Texas IRS Service Center.  “I need the additional time to prepare a complete and accurate return” will likely get your request granted.

Lastly, there is a special extension of time to meet residence abroad tests to qualify for exclusion of Foreign Earned Income.  Form 2350 is used for this purpose, and may get you 30 days past the date when you expect to qualify for the residence abroad tests.

As alluring as extensions are, I recommend their use only when necessary.  Blowing through an extension can be expensive.  But most importantly, the IRS clock to audit your return will not begin until you file.  Keep that in mind.

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies.  His love of things Mexican has led him to devote part of his practice to the tax matters of U.S. expats in Mexico.  He can be reached at tax@orlandogotay.com.