Need More Time for Tax Actions?

Some tax deadlines are carved in stone, but others may be written in pencil and can be changed under the right circumstances. If you need more time to file your 2013 income tax return, all you have to do is ask for it. It’s easy; just submit an extension request on Form 4868 no later than April 15, 2014. You don’t have to give a reason for needing the extension or even sign the form. All you have to do is estimate the tax you expect to owe. Of course, it’s a good idea to pay as much of the tax as you estimate to minimize or avoid any late payment penalties (an extension of time to file your return does not automatically give you more time to pay your taxes).

There may be other situations in which you need more time to act beyond statutory or IRS-set deadlines. In some cases, the IRS creates automatic procedures to follow; in others, you must make a private ruling request. Here is a roundup of some recent examples of situations in which extensions have been granted:

• Sec. 83(b) election. If you receive restricted stock, which is not ordinarily taxable until the restrictions lift and there is no longer any substantial risk of forfeiture, you can opt to include the value of the restricted stock in income now. Paying tax now allows all future appreciation to become capital gains when the stock is sold. To make this election, you must file a statement within 30 days of receiving the stock. One employee who bought such stock from his employer was given more time to make the Sec. 83(b) election because his tax preparer failed to attach the statement to his return (Letter Ruling 201405008).
• Qualified retirement plan and IRA rollovers. When a distribution is made, the taxpayer has 60 days to roll it over to an IRA in order to avoid immediate income recognition. When a distribution was made to an employee from his qualified retirement plan but the financial institution failed to complete the rollover in time, the IRS gave him more time to complete the rollover (Letter Ruling 201405003).
• Recharacterization of Roth IRAs. When a conversion from a traditional IRA is made to a Roth IRA, it can be essentially undone by recharacterizing it back to an IRA no later than October 15 following the year of the conversion. In one case that concerned a tax year when there was an income limitation on eligibility to make a conversion, the IRS gave a taxpayer more time to recharacterize the account. His CPA failed to calculate his adjusted gross income, which put it over the eligibility limit. Without the IRS’s consent, he would have been taxable on the funds (just as in the case of the conversion), but they would no longer be in a tax-qualified account (Letter Ruling 201405033).
• Portability election. When a spouse dies and does not use up his/her exemption amount ($5.25 million in 2013; $5.34 million in 2014), the estate can elect portability to enable the surviving spouse’s estate to use the balance of the exemption for the federal estate tax (in addition to the surviving spouse’s own exemption). In light of the U.S. Supreme Court’s Windsor decision last June, which recognized same-sex marriages for federal tax purposes, the IRS has created a simplified extension that can be used to elect portability where it had not been done. For any estate of a taxpayer dying in 2011, 2012, or 2013, which did not file a return because it was below the filing threshold, it can now submit a completed return no later than January 31, 2014, to elect portability. This entitles the surviving spouse to use the balance of the exemption from the first spouse to die. Caution: If the second spouse has already died and his/her estate is approaching the statute of limitations for claiming a refund based on the application of portability (generally 3 years from the due date of the estate tax return), it should file a protective refund claim. Once the first estate makes a valid portability election using the simplified extension, the IRS will then issue the refund to the second estate (Rev. Proc. 2014-18).

Bottom line: Tax deadlines are serious limits on actions. However, in some situations there may be ways to gain more time. The sooner you try to fix any deadline oversight, the more likely it is that you’ll have IRS support to do so.