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April 29, 2015 - Phil Hodgen

2014 Form 1040 filing, payment deadlines for Americans abroad

Summary

These are the deadlines for an American abroad for filing the 2014 Form 1040 and paying the tax due:

  • An American abroad has a filing deadline of April 15, 2015 to file a 2014 Form 1040. You get an automatic extension to June 15, 2015. (Further extensions until December 15, 2015 are possible but are not discussed here).
  • To avoid late payment penalties, pay your 2014 taxes by June 15, 2015. Pay the tax due by then and you will not have late payment penalties.
  • Interest will start running on unpaid tax on April 15, 2015.

Let’s dig deep and find out why the Lord giveth (No penalties! Yay!) and the Lord taketh away (Interest! Boo!).

Question

Chris posted a comment to a blog post about filing deadlines titled Form 1040NR Filing, Tax Payment Deadlines. He wanted to know about filing deadlines for U.S. citizens and resident aliens:

Phil, good article. How would the above scenario apply to US citizens and resident aliens living outside the US on April 15th and qualifying for the automatic 2 month extension pursuant to Treasury Regulation 1.6081-5(a)? Would their payment deadline also be June 15th or April 15th?

Default filing deadline is April 15, 2015

The default filing deadline for the 2014 income tax return is April 15, 2015:

In the case of returns under section 6012, 6013, 6017, or 6031 (relating to income tax under subtitle A), returns made on the basis of the calendar year shall be filed on or before the 15th day of April following the close of the calendar year and returns made on the basis of a fiscal year shall be filed on or before the 15th day of the fourth month following the close of the fiscal year, except as otherwise provided in the following subsections of this section.

See 26 U.S.C. §6072(a). Emphasis added.

A human files a return under Section 6012, and computes income based on the calendar year. That is why April 15 is the magic date for filing a tax return.

Default payment date is April 15, 2015

The payment deadline for tax as calculated on the tax return is the default filing date for the return:

Except as otherwise provided in this subchapter, when a return of tax is required under this title or regulations, the person required to make such return shall, without assessment or notice and demand from the Secretary, pay such tax to the internal revenue officer with whom the return is filed, and shall pay such tax at the time and place fixed for filing the return (determined without regard to any extension of time for filing the return).

26 U.S.C. §6151(a). Emphasis added.

The time for filing your 2014 income tax return is April 15, 2015. (We will talk about extensions in a minute). 26 U.S.C. §6072(a). As a result, the default payment date (before we start monkeying around with extensions of time) is April 15, 2015.

Automatic extension to June 15, 2015

The April 15 deadline is automatically extended for Americans abroad:

  • The filing deadline is June 15, 2015 for your 2014 Form 1040 if you meet the “tax home” test; and
  • The deadline for paying the tax shown on your 2014 income tax return is also June 15, 2015.

Why? Because Treasury Regulations Section 1.6081-5(a)(5) says so:

An extension of time for filing returns of income and for paying any tax shown on the return is hereby granted to and including the fifteenth day of the sixth month following the close of the taxable year in the case of . . . United States citizens or residents whose tax homes and abodes, in a real and substantial sense, are outside the United States and Puerto Rico.

Extended tax payment date to June 15, 2015

The default rule for the payment date tells you that April 15 is your payment date, and this payment date is “determined without regard to any extension of time for filing the return“. 26 U.S.C. §6151(a); emphasis added.

Treasury Regulations Section 1.6081-5(a)(5) gives a specific override to the payment date. In addition to extending the time for filing the return (which does not matter) it grants an explicit extension for payment of tax (which matters a whole lot).

Therefore, we can say with certainty that the 2014 tax due must be paid on or before June 15, 2015.

Why you care about paying tax on time

There are only two reasons you want to pay your tax on time (and remember, “on time” means paying your 2014 taxes no later than June 15, 2015):

  • So you do not pay late payment penalties; and
  • So you do not pay interest to the IRS.

The automatic extension of time for filing your 2014 Form 1040 (to June 15, 2015) solves the first problem but does not solve the second problem.

No late payment penalty if tax paid before June 15, 2015

If you pay your 2014 tax due after the due date for payment, you will be pay a late payment penalty:

In case of failure . . . to pay the amount shown as tax  . . . on or before the date prescribed for payment of such tax (determined with regard to any extension of time for payment), . . . there shall be added to the amount shown as tax on such return 0.5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 0.5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate. . . .

26 U.S.C. §6651(a)(2).

“Date prescribed for payment” (i.e. due date) means the original April 15, 2015 deadline as extended to June 15, 2015. As a result, the late payment penalty will be imposed only if your payment of 2014 taxes is made after June 15, 2015.

But you pay interest from April 15, 2015

So far, so good. If you pay your 2014 tax liability by June 15, 2015, you will not be tagged with a late payment penalty.

What about interest? Unfortunately, the story is not so happy.

If you do not pay your tax from the “last date” for payment, then you must pay interest on the unpaid tax:

If any amount of tax . . . is not paid on or before the last date prescribed for payment, interest . . . shall be paid for the period from such last date to the date paid.

See 26 U.S.C. §6601(a).

The definition of the “last date prescribed for payment” is essential to understanding what happens next. That date is not extended to June 15, 2015.

The IRS will charge interest on unpaid tax from the “last date prescribed for payment of tax” and:

[T]he last date prescribed for payment of tax shall be determined . . . without regard to any extension of time for payment. . . .

See 26 U.S.C. §6601(b)(1). Emphasis added.

The original payment deadline set by law is April 15, 2015. The extension for payment (to June 15, 2015) is irrelevant for interest calculation purposes. Instead, we look at the tax that was unpaid on April 15, 2015 and calculate interest on that amount until it is paid in full.

This outcome is confirmed on page 6 of the 2014 Instructions to Form 1040:

This [automatic] extension [to June 15, 2015] gives you an extra 2 months to file and pay the tax, but interest will be charged from the original due date of the return on any unpaid tax.

Thanks

Thanks to John Bowlby and Jurate Gulbinas of our team for putting together the research and analysis for this week’s Friday edition.

Disclaimer

Don’t you go all blamethrower on me. This is not legal or tax advice to you. You did your own research and figured it out, right? Or you hired a specialist to help you. You’re a grown-up.

See you next week.

Phil.

Friday Edition