IRS RELAXES FULL-PAYMENT REQUIREMENT FOR EXTENSIONS.

Notice 93-22

This notice provides relief for individuals who want to obtain an automatic 4-month extension of time to file their U.S. individual income tax returns (Form 1040, 1040A, or 1040EZ), but who are unable to pay on or before the original due date of those returns (generally, April 15), the amount of tax estimated to be due.

The current regulations under section 6081 of the Internal Revenue Code provide that an automatic 4-month filing extension may be obtained only upon full payment of the tax properly estimated to be due, which must be determined in good faith and paid on or before the original due date of the return. (The full payment requirement is also stated in the instructions to Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.) If the taxpayer does not make a proper estimate of his or her tax liability based on available information, the taxpayer is treated as not having filed a valid request for extension and is liable for the late filing penalty.

Under this notice, Form 4868 may be filed and an automatic 4- month extension obtained even though the tax properly estimated to be due is not paid in full when Form 4868 is filed. Thus, no late filing penalty will be assessed under these circumstances. The regulations under section 6081 of the Code will be amended to reflect this change for 1992 and subsequent taxable years. However, no change will be made to the requirement that the tax liability shown on Form 4868 must be properly estimated based on the information available to the taxpayer. If the tax liability is not properly estimated, the extension will be disallowed, and the late filing penalty will be assessed.

At or before the end of the automatic 4-month extension period (generally, August 15), a taxpayer entitled to that extension must file the appropriate income tax return and pay the tax liability shown thereon. If upon filing his or her return the taxpayer does not pay interest from the original due date of the return to the date of payment, the Internal Revenue Service will bill the taxpayer for interest (at the rate applicable to underpayments). The taxpayer will be billed for a late payment penalty (which equals one-half of one percent of the unpaid tax for each month from the original due date to the date of payment), unless at least 90 percent of the taxpayer's actual tax liability was paid prior to the original due date of the return through withholding on the taxpayer's wages, estimated tax payments, or any payment accompanying the Form 4868.

If a taxpayer is unable to pay the tax owed on or before the end of the automatic 4-month extension period, the taxpayer should attach Form 9465, Installment Agreement Request, to the income tax return. The Service will attempt to arrange with the taxpayer an installment payment agreement that reflects the taxpayer's ability to pay the tax owed. In this regard, the Service encourages taxpayers to make installment payments as large as possible in order to reduce the interest and penalties required by law.

If a taxpayer is unable to file the individual income tax return on or before the end of the automatic 4-month extension period, the taxpayer should file Form 2688, Application for Additional Extension of Time to File U.S. Individual Income Tax Return. The Service will consider the merits of this request for an additional extension and advise the taxpayer accordingly.