Two legislators introduced a bill to make it easier for individuals to calculate their tax liability when they file for an extension, a move the AICPA endorsed.
Reps. Judy Chu, D-Calif., and Mike Carey, R-Ohio, filed the Simplify Automatic Filing Extensions (SAFE) Act of 2023, H.R. 3566, on Monday to streamline the process for the millions of Americans who seek the six-month extension each year to file their federal tax return.
“The additional time is necessary for people who, for a variety of reasons, are not able to file by the original due date,” Edward Karl, CPA, CGMA, vice president–Tax Policy & Advocacy for the AICPA, said in a news release. “Reducing the stress and work associated with attempting to calculate a current-year tax liability estimate for the purpose of filing an extension should improve taxpayer compliance and help practitioners better manage work during the tax busy season.”
Regs. Sec. 1.6081-4 now requires taxpayers to “show the full amount of properly estimated” tax liability for the current year along with their extension request. If this liability amount is inaccurate, the IRS could decide the extension is inaccurate, and the taxpayer will owe penalties. This means that filers must calculate the taxes they owe by the April filing deadline to get an extension, then repeat the process when they file their return during the extension period.
The SAFE Act would allow individual taxpayers to qualify for an extension by paying 125% of their prior year’s tax liability.
“Requiring taxpayers who need an extension to calculate their often-complicated taxes twice in a year is repetitive and burdensome,” Chu said. “… Making it easier to comply with tax law will mean more taxpayers pay what they owe, and government can continue providing essential services.”
Filing for an extension should not be stressful, Carey said. “By simplifying the tax filing extension process and removing the fear of penalty, both taxpayers and the IRS will be better off,” he said.