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February 6, 2016 - Phil Hodgen

Filing and Tax Payment Deadlines for Americans Abroad

Hello and welcome to this edition of the Friday Edition. You signed up for this, but you can easily stop it from coming by clicking the “unsubscribe” link at the bottom of the email.

This time you get a little summary of the Form 1040 filing deadlines for Americans abroad. The rules are unnecessarily precious and convoluted, so this is my attempt at providing a simple explanation. It is a happy by-product of my preparation for a webcast I will be doing for the California Society of Certified Public Accountants.

What is the filing deadline for an income tax return filed by a U.S. citizen or resident living abroad? This article explains the rules.

Overview

Here is the overview:

Filing Deadlines

  • Default rule: April 15. If your “tax home” or “abode” is in the United States your filing deadline is April 15. This is the default rule.
  • Automatic extension: June 15. If your “tax home” or “abode” is outside the United States, your deadline for filing your income tax return is June 15. This is automatic and you do not need to file anything to get it.
  • Normal extension: Use Form 4868 (whether you qualify for the June 15 deadline or not) to make extend the filing deadline to October 15.
  • Extra extension: Another extension is possible for some people — to December 15.
  • Foreign Earned Income Exclusion. For people who need time in order to qualify for the foreign earned income exclusion, Form 2350 allows you to select your own filing deadline to achieve that goal.

Payment Deadlines

  • Default rule: The tax due on your tax return is payable on or before April 15.
  • Some people: If you qualify for the June 15 extended deadline to file your tax return, you can pay your tax — without late payment penalties — on or before June 15. However, you will owe interest on the tax due, from April 15 until the day you pay the tax. No further extension of the payment due date is possible.

Filing Deadlines

The filing deadline rules are not too difficult to understand — after you ignore the confusing instructions for Form 4868.

Standard Rule: April 15

The standard rule is that you must file your income tax return on or before April 15. IRC § 6072(a).

Treasury Regulations: IRS Says June 15 For Some People

The IRS has authority to give extensions of time to file a tax return. IRC § 6081(a). For some Americans abroad, the IRS has given an automatic extension (you don’t have to ask for it, you just have it). T. Reg. § 1.6081-5(a)(5) is where the IRS has done this.

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[.]

This requires you to have your “tax home” and “abode” outside the United States and Puerto Rico.

If you use this method and file by June 15, be sure to attach a statement to your tax return, showing that you qualify.  See T. Reg. § 1.6081-5(b)(1).

Note that the Form 4868 instructions are fatally vague on this point, implying that merely being abroad (as a tourist, for example) is sufficient.

The Form 4868 instructions say:

Taxpayers who are out of the country

If, on the regular due date of your return, you are out of the country and a U.S. citizen or resident, you are allowed 2 extra months to file your return and pay any amount due without requesting an extension. Interest will still be charged, however, on payments made after the regular due date, without regard to the extension. For a calendar year return, this is June 15, 2016. File this form and be sure to check the box on line 8 if you need an additional 4 months to file your return.

The Form 4868 instructions are ambiguous. They say — flat out — that if you are outside the USA on the regular due date of your return, you get an extra two months without requesting an extension.

This is referring to the two month extension established by T. Reg. § 1.6081-5. I know of no other extensions.

The Form 4868 Instructions make it sound like a tourist who is abroad on April 15 can qualify for the automatic two-month extension of time to June 15. This is wrong. Only someone whose “tax home” or “abode” is outside the United States will qualify for this automatic two-month extension for the filing deadline for Form 1040.

The Instructions do not agree with the law. Rely on the “automatically until June 15” extension only if you are sure you satisfy the “tax home or abode” requirement. It is trivially easy to extend the filing deadline simply by filing Form 4868 if you are uncertain on this point.

Extension to October 15

You can get an extension of time from April 15 until October 15, using the traditional method of filing Form 4868. This is authorized by IRC § 6081(a).

You must file Form 4868 in a timely manner. This means you must file it before April 15 (if your tax home and abode is in the United States) or before June 15 (if your tax home and abode is outside the United States.)

Note that this is a little bit confusing. For an American living abroad (tax home and abode is outside the United States), there is an automatic extension from April 15 to June 15, and the normal six month extension (using Form 4868). Does this mean that the six month extension starts on June 15 and expires on December 15? No.

Both extensions start on April 15. For April 15 through June 15, both extensions apply to an American living abroad. They are like concurrent prison sentences, to use an unfortunate comparison.

On June 15, the automatic extension expires. But the Form 4868 extension continues on for another four month, expiring on October 15.

Further extension to December 15

If October 15 is not enough, you can apply for and receive one more extension of time — to December 15. This is done by sending a letter to the IRS. T. Reg. § 1.6081-1(b).

Publication 54, *Tax Guide for U.S. Citizens and

Resident Aliens Abroad (2015)*, at page 4, gives you the rules:

[T]axpayers who are out of the country can request a discretionary 2-month additional extension of time to file their returns (to December 15 for calendar year taxpayers). To request this extension, you must send the Internal Revenue Service a letter explaining the reasons why you need the additional 2 months. Send the letter by the extended due date (October 15 for calendar year taxpayers) to the following address:

Department of the Treasury Internal Revenue Service Center Austin, TX 73301-0045

You will not receive any notification from the Internal Revenue Service unless your request is denied.

The discretionary 2-month additional extension is not available to taxpayers who have an approved extension of time to file on Form 2350[.]

Form 2350: Long Extension For Foreign Earned Income Exclusion Purposes

An entirely different extension system applies for Americans abroad who have not yet qualified for the foreign earned income exclusion (see Form 2555) but expect to.

Form 2350 allows an American abroad to select a filing deadline far enough in the future so that they will either qualify for the physical presence test (330 days or more in a 12 months period are spent outside the United States) or for the bona fide residence test (a full calendar years elapses where the taxpayer is a bona fide resident of a foreign country).

I suggest picking a date that is a month after you expect the qualification for the physical presence test or the bona fide residence test.

Warning: FinCen Form 114

Important: I do not cover the filing deadline for FinCen Form 114 here. The law recently changed — but it is not in effect for the 2015 tax year paperwork.

The filing deadline is still June 30, 2016 for your 2015 tax year filing.

Next year (when you file the FinCen Form 114 for calendar year 2016), sanity will prevail and the filing deadline for the FinCen 114 will be synchronized with the normal income tax return filing deadlines.

Tax Payment Deadlines

The government encourages you to pay your tax promptly by imposing penalties and interest if you do not.

Here we look at the payment of the tax due that is shown on your tax return as filed. What is the deadline for paying that tax if you are an American abroad?

Treasury Regulations: IRS Says June 15

The IRS has extended the time for payment (as authorized by IRC § 6161(a)(1)) for certain U.S. citizens and residents abroad:

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:

(5) United States citizens or residents whose tax homes and abodes, in a real and substantial sense, are outside the United States and Puerto Rico; and

6) United States citizens and residents in military or naval service on duty, including non-permanent or short term duty, outside the United States and Puerto Rico.As a result, you can defer payment until June 15 for the tax shown on your return.

Payment Deadlines, Interest, Penalties

Payment Deadline: April 15 Unless the IRS Says Otherwise

The general rules is that tax payment is due at the time that is set for the filing deadline. IRC § 6151(a). Since the filing deadline is April 15, this is the default payment deadline.

Therefore, the default payment due date is always April 15, unless you find an explicit allowance for extra time to pay your tax.

IRS Says June 15 for Some People

The IRS has extended the time for payment (as authorized by IRC § 6161(a)(1)) for certain U.S. citizens and residents abroad:

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:

(5) United States citizens or residents whose tax homes and abodes, in a real and substantial sense, are outside the United States and Puerto Rico; and

(6) United States citizens and residents in military or naval service on duty, including non-permanent or short term duty, outside the United States and Puerto Rico.As a result, these people can defer payment until June 15 for the tax shown on your return, and will not be treated as paying their tax late.

You Will Owe Interest From April 15

However, you will owe interest on the tax due on the return. The interest will run from April 15 (the normal due date) until you pay the tax.

This is an underpayment of tax. The general rule is in IRC § 6601.

An underpayment exists when the taxpayer does not pay a tax on or before the last day prescribed for payment:

If any amount of tax imposed by this title (whether required to be shown on a return, or to be paid by stamp or by some other method) is not paid on or before the last date prescribed for payment, interest on such amount at the underpayment rate established under section 6621 shall be paid for the period from such last date to the date paid.

IRC § 6601(a).The “last date prescribed for payment” is a defined term. It is the due date as it should be, without taking extensions into account:

The last date prescribed for payment shall be determined without regard to any extension of time for payment or any installment agreement entered into under section 6159.

IRC § 6601(b)(1).The additional two months for filing and payment (from April 15 to June 15) is an extension granted to taxpayers by an exercise of discretionary power by the IRS in T. Reg. § 1.6081-5(a).

Therefore, when determining the application of the “interest payable on underpayments of tax due” rules, we ignore that two month stub of time, and compute interest on any tax due starting with April 15.

Late Payment Penalties Accrue Starting on June 15

You will not owe late payment penalties if you pay the tax on June 15 rather than April 15.

The penalty for not paying the amount shown on the tax return is imposed by IRC § 6651(a)(2):

In case of failure . . . to pay the amount shown as tax on any return specified in paragraph (1) on or before the date prescribed for payment of such tax (determined with regard to any extension of time for payment), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, 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[.]

The relevant language is that magic phrase “on or before the date prescribed for payment of such tax”.

Since the IRS has “prescribed the date for payment” to be June 15 (see T. Reg. § 1.6081-5, as authorized by IRC § 6161(a)(1)), the penalties for late payment will start on June 15, rather than April 15.

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