Does a Tax Extension Increase Your Chances of a Tax Audit?

In some situations, a tax extension is absolutely necessary. However, some people file for an extension every year even if they don’t actually need one. A tax extension will give you 6 more months to file your income tax return ― although you must still pay any tax owed by the original due date.

You never know when an emergency (personal or financial) will pop up and force you to drop everything else. If this happens during tax season, you should file a tax extension. Are you having a difficult time finding all the receipts that you accumulated during the past year? Did you misplace your W-2 or 1099s? While you could rush to file your taxes with what you have, there is no good reason you should take that risk. Rushing through your tax return often leads to mistakes ― and those mistakes can be costly.

To request a tax extension, fill out IRS Tax Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) and submit it to the IRS by April 17th, 2012. Keep in mind that you must also send payment for any taxes due.

Tax Extensions and Tax Audits: Is There a Connection?

When someone says the words "tax extension" to you, do you automatically think "tax audit?”

Maybe it's time to think again. No one outside the IRS knows for sure how the audit system really works, but many CPAs have said that tax extensions actually decrease your chances of getting audited.

Why, you ask? Many believe IRS officers have an audit quota which begins around tax filing season. Some accountants theorize that the quotas get filled well before the tax extension deadline in October (or September for business tax extensions). Thus, when the tax returns which have been approved for extensions are finally submitted, the IRS agents have less incentive to put those returns in their audit pile.

There is some discussion as to whether or not this is true, but filing a tax extension certainly won't single you out for unfavorable treatment. Over 10 million (out of 140 million) taxpayers filed a tax extension last year ― and about half of all U.S. corporations did as well.

Does the IRS Hate Tax Extensions?

It's commonly believed that the IRS frowns on tax audits and is less likely to treat extended returns favorably. If that were the case, however, why would they offer an automatic 6-month tax extension to anyone who files for it, no questions asked? Additionally, by filing for a tax extension you are actually demonstrating compliance with IRS regulations. Think of all the people who just file late (or not at all) without even contacting the IRS.

It is pretty likely that IRS agents (just like you and your accountant) wouldn't mind fewer tax returns during March and April. Both accountants and IRS agents get overwhelmed during tax season, and the chance of human error (which can trigger a tax audit) is much greater. Therefore, there is no reason not to give everyone a bit of a break and file for a tax extension this year.

It's easier than ever to  file a federal income tax extension online. FileLater can handle it for you in just minutes, and the automated system screens out human error when filling out the tax forms. You will be notified when your tax extension is approved ― and if for any reason it's rejected, you will be told why and allowed to re-file for free.

File a tax extension online with FileLater! Your accountant and your friendly neighborhood IRS agent will thank you.