Filing Season 2013: Year of the Extension?

Written by Peter Tran

June 11, 2017

This year may prove to be a record year for the filing of individual and business extensions.

On January 1st, Congress passed the American Taxpayer Relief Act of 2012, AKA the Fiscal Cliff Tax Act. This legislation contained 17 pages of Tax Code changes, more than a dozen of which were retroactive and altered the rules for the prior tax year.  These changes were made at the very mom the IRS (and the ire tax-processing industry) was prepared to process income tax returns using the s that were already in place for 2012.  What this has meant for many taxpayers is delayed filing, delayed refunds, and the increased possibility of filing returns containing errors.

The Good and Bad News: Retroactive tax legislation generally makes the rules more favorable for taxpayers because they usually expand deductions and increases credits.

, however, are highly complex.  Hence, the Bad News:  Your tax return can be described as an algebraic (I would say logical, but this the Tax Code, after all) expression.  It is a series of mathematic and conditional statems which will fill several pages of a college-ruled notebook for even a simple return.  Add a few deduction or credits and the equation grows several more pages.  The slightest change in this formula will alter the final tax (or refund) due on your return.

The Internal Revenue Service and the tax-processing industry spend each year creating the formula to calculate the tax on returns filed the following year.  On January 1st of , however, just as the equation for 2012 reached near-finalization, congress decided to scrap and replace Tax Troubles and Retroactive Change:  A single retroactive tax- change results in a cascading series of challenges for the IRS, firms, tax professional and taxpayers. It can also cause massive delays, impacting taxpayers relying on their refunds to pay bills.

As an example, let’s consider just one retroactive change included in the Taxpayer Relief Act of 2012, the addition of Mortgage Insurance for those who itemized deduction on Schedule A.  What’s the impact of this retroactive change?  Let’s see:

The Result: The end result of this and other retroactive tax changes is delayed filing, delayed refunds, errors on submitted tax returns, frustrated taxpayers, and stressed-out tax pros who are caught in the middle. 

Fortunately, for those claiming the mortgage insurance deduction, the IRS started to accept returns including Schedule A on January 31, .  However, many taxpayers were not so lucky.  Taxpayers who own businesses and those claiming certain credits could not file until mid-February, and some even had to wait until mid-March before the IRS would allow them to file.

The Bottom Line – No More Time: The retroactive changes included in The American Taxpayer Relief Act of 2012 caused extreme delays in filing this season.  It did not, however, provide additional time for taxpayers to file their returns.  Tax returns are still due April 1, unless an extension is filed. 

An extension gives taxpayers an additional six months to complete and file their returns and provide time for the IRS to correct remaining glitches before their returns are processed.  If are owed and p after April 1, however, taxpayers may still be liable for a late paym penalty. 

It is for all these that Filing Season will likely be a record for extension filing. 

As always, this article is for informational purposes only.  If you have any question or need assistance with your please feel free to contact our office to talk with a tax professional.

 

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