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Friday, July 10, 2020

Some Tax Terms Create Confusion, Such as "Automatic"

July 15 - the due date for most 2019 filings as well as the first and second quarters of 2020 income tax payments, being just  few days away, we see reminders from the IRS and state tax agencies.

The other day I saw a statement that you can get an "automatic" extension from the IRS, I thought I had missed something because I thought you still needed to file a Form 4868. I double-checked and you do still need to file the Form 4868 by July 15 to get an extension to file until October 15. So, here, "automatic" meant you don't have to offer a reason to get the extension, you just file the form.

In contrast, in California, an automatic extension means you don't have to do anything other than not file by the "normal" due date. So, here, automatic means it all happens without any action by the individuals. See here and here. You do need to file something if you owe on the due date.

The California usage of "automatic" is similar to the FBAR filing extension. An FBAR is normally due by April 15 for individuals but can be extended to October 15. That extension request is automatic and you don't need to do anything.

So, why not do any of the following to make this clearer and eliminate the likelihood of error (such as not filing Form 4868 by July 15 (normally it is due April 15 but was extended for 2020 due to COVID))?
  • Don't use "automatic" but instead state that you must file Form 4868 to obtain more time to file (but not pay). And state that you do not need to state a reason for needing the additional time.
  • Use two dates: Payments are due by April 15 (July 15 for 2019 returns) and returns are due by October 15.  (The reality is that if you don't need to do anything to get the extra time to file, then isn't the filing date really that later date?)
What do you think?

What other words should be changed to reduce some of the complexity in tax systems and reduce mistakes? btw, I'm all for getting rid of Form 4868 and going with the second option above.

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