FINAL REGULATIONS ON AUTOMATIC EXTENSIONS EASE PAYMENT AND SIGNATURE REQUIREMENTS

By Kevin M. Levine, CPA, Rosenberg Selsman & Company LLP

For the past few years, taxpayers have been filing requests for extensions of time to file returns without paying the balance due of properly estimated tax, notwithstanding the general rule: "An extension of time to file is not an extension of time to pay." That is, because the IRS, in Notice 93-22, allowed individual taxpayers to obtain automatic four--month extensions even though the tax properly estimated to be due was not paid in full with Form 4868. On January 14, 1996, temporary and proposed regulations were released (TD 8651 and IA-41-93) on this issue, and ultimately finalized in December 1996 (TA 8703), adopting and expanding this procedure and also providing guidance for partnerships, trusts, and Real Estate Mortgage Investment Conduits (REMICs).

Under the final regulations, individuals can obtain automatic extensions without including a remittance with Form 4868. Also, significantly, the regulatory requirement that Form 4868 be signed is removed. However, the full amount of tax must still be properly estimated on Form 4868. Also, if 90% or more of the taxpayer's actual tax liability is not paid prior to the original due date of the return through withholding, estimated tax payments, or payments with the extension, a late payment penalty will be assessed at one-half of one percent of the unpaid tax per month. Furthermore, interest will be assessed on any amount of unpaid tax. Late filing penalties, at five percent per month, are avoided under these final regulations.

Similar rules are provided for partnerships, trusts, and REMICs for three-month extensions. No signature will be required on Form 8736, even though the current instructions require one. Also, trusts and REMICs are not required to remit the amount of properly estimated tax to receive an automatic extension. The final regulations are effective December 31, 1996.

Note: Taxpayers who are unable to pay the tax owed by the end of the automatic four-month extension period should attach Form 9465, Installment Agreement Request, to the return. *