Treasury Provides Guidelines for Extension and Waiver of Penalties

The Treasury Department (the “Department”) issued Administrative Determination No. 18-07 (the “Determination”). The Determination basically discusses two items. First, it extends the automatic extension terms from three to six months. Second, it provides some guidelines to request the waiver of additions to the tax for late payment of estimated income tax. A more detailed discussion follows.


Extended Period for the Automatic Extension

As a general rule, an automatic extension provides for an additional period of time of three months to file the corresponding tax return and does not allow for additional time to pay. It’s called an automatic extension because the taxpayer does not need to provide a reason for it. However, note that it has to be timely filed.

After the approval of the Determination, the original filing date to apply for the extension remains to be April 17, 2018 (in the case of individual and corporate calendar year taxpayers). This means that the person has to timely file an automatic extension by the original due date (April 17, 2018) in order to obtain the automatic extension of 6 months (the “Expanded Extension”).

The Expanded Extension shall be allowed to all taxpayers for years commencing during the calendar year 2017. For that matter, additional extensions for individuals or estates will not be available for 2017.

If the Department requires a taxpayer to file the extension by electronic means then such mechanism must be used to be eligible for this benefit. In the case of corporations that want to use the Expanded Extension, they would generally be required to file also their final return as well by electronic means. Note that in the case of corporations there is some exception which cannot file by electronic means and can file by paper and still be eligible for the Expanded Extension.


Waiver of Additions to the Tax due to Late Payment

The Department explained that they will be willing to waive eligible additions to the tax caused by late payment (the “Waivable Additions”) related to the taxable year 2017 if certain requirements are met. Be advised that the penalties themselves are still in place, the purpose of the Determination is to provide a streamlined simpler mechanism to request the waiver of the Waivable Additions. This new waiver would be applicable in the case of payments due with the filing of the return (the “Due with Return Payments”) and penalties regarding estimated tax payments for the year 2017 (“2017 Estimated Tax Payments”).

In the case of persons allowed to pay in two installments their final liability for the taxable year 2017, the second installment shall still be due on October 17, 2018.