While 143 million individual tax returns were filed by July 21, 2017, the IRS expects an additional 9 million to be filed by the extended due date of October 16, according to IRS Commissioner Koskinen. (The normal due date of October 15 falls on a Sunday this year).
“This could be a new record for returns filed with extensions,” observed Mark Luscombe, CPA, Esq., principal federal tax analyst for Wolters Kluwer Tax & Accounting. “Perhaps it has been brought on by the uncertainty this year regarding the obligation to pay the individual mandate under the Affordable Care Act.”
“Other factors playing a part in the increased number of extensions are a lack of complete tax information by April 15, such as missing Form K-1s or 1099s; taxpayers that have not organized all of their information in time; and return preparers who are too busy to process all of their clients’ returns by April 15,” said Luscombe.
Additionally, he noted, the IRS waived the penalty for partnerships that did not make this year’s earlier filing deadline of March 15. “That’s probably an indication that a lot of people didn’t make the deadline,” he observed. “So the IRS took pity on them and waived the penalty as long as they requested an extension by April 15. The change in due dates for partnerships and corporations was supposed to have reduced the number of extensions, but it doesn’t seem to have that for this year –possibly because it was new.”
Another reason many might have requested extensions this year is the issue of whether taxpayers are required to pay the individual mandate under the Affordable Care Act, Luscombe suggested. “With Graham-Cassidy being debated in Congress, it still leaves the possibility of the individual and employer mandates being repealed retroactive to 2016, so at this late date there’s still uncertainty as to whether people will be required to pay the individual and employer mandates for 2016.”
The answer to this will be known soon enough, since the waiver was in the 2017 budget agreement and expires when the fiscal year expires on September 30. With three Republicans already voicing opposition to the bill, as we go to press it looks headed for defeat.
“The administration has hinted that they would not be too vigorous in enforcing the mandates given the possibility of repeal, but the IRS has said as long as it’s the law they will enforce it,” Luscombe said.
While 2017 may set a new record for filings by the extended due date, the trend toward increased extensions has been on the rise for a number of years, Luscombe noted. “In 1999, 5.5 percent of all payments with individual tax returns were made in conjunction with extension requests,” he said. “By 2014, that number had risen to 7.9 percent of all payments with individual tax returns.”
“And these returns filed with extensions tend to be returns with more significant taxes due,” Luscombe said. “If you look at the statistics, the people who file for extension tend to be taxpayers who owe and also tend to have more complicated returns. For example, in 2014, the average tax paid on a return filed with an extension request was over $66,000.”
“Wealthier taxpayers are more likely to have their returns done by a preparer, so although we’re seeing a gradual rise in overall returns filed by extension, for wealthier taxpayers I would guess that the percentage increase is even higher,” he added.
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