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Talking to clients about extensions — a tax season must-read

Shutterstock_1201562083Welcome to the midpoint of busy season. It’s been a long road, and you’ve got quite a ways left to go. Luckily, the finish line is in sight.

Or is it? Unfortunately, not everyone’s tax returns will be filed by April 15 as planned.

Many of your clients are still making sense of the new tax laws and pending guidance stemming from tax reform. They’ve weathered a prolonged government shutdown. They’re confused and not sure they can get everything done on time.  

You’re feeling it, too. On top of these complications, you’re dealing with an increased workload during an already compressed busy season. Sometimes there’s not much you can do except prep your clients for plan B.

Broaching the subject of tax extensions can be a tough conversation to start. To help, Jerry Schreiber, CPA, weighed in on four talking points to use in these client meetings. You can also download and print out this tax extensions FAQs handout to explain things further. It’s free to AICPA members and available as part of the Tax Practitioner’s Marketing Toolkit.

Talking point 1: Explain the ins and outs of extensions — Right now you’re pressed for time, but with only six weeks left of busy season, some clients are still in no hurry to get their information to you. Other clients may have unexpected life events or incomplete documents keeping them from finalizing their tax organizers. Identify these late clients now and reach out to them. Explain why they may need a tax extension early so they are not surprised later. Schreiber also stressed that it’s crucial to remind your client that a tax extension is an extension for them, not for their CPA. It’s ultimately the client’s responsibility to file their taxes by the extended deadline. When your client does agree to file a tax extension, Schreiber suggests getting documentation of this agreement in writing. This will demonstrate that your client understands the purpose of the extension and authorizes you to file it on their behalf.

Talking point 2: Review the benefits — Filing an extension may sound risky to a client who doesn’t know how they work. Your client may worry they’ll owe more money or be more likely to be audited. You know that’s not the case. Help them understand that a tax extension makes it easier for you to compile and review all the necessary tax documentation needed for an accurate return. Remind them it may be more cost effective to file an extension now than an amended return later.

Talking point 3: Communicate the deadlines — Simply put, your client’s extension is a delay in the time to file, not a delay in the time to pay an outstanding tax bill. Interest will accrue on any unpaid balance due, and your client may be subject to severe penalties if they fail to file their return by the extended filing deadline, Schreiber said. “This needs to be communicated to the taxpayer,” he said. “Some clients are confused or incensed at being assessed interest and penalties.” Be upfront about potential complications so there are no surprises. 

Talking point 4: Remind them of the state rules — Your client is subject to more than just federal taxes. Keep state rules in mind when filing a tax extension. The procedure varies from state to state and could result in unexpected penalties. “State extensions do not get the same attention that federal extensions do,” Schreiber said. How a state conforms — or does not conform — to federal tax reform changes adds to the complexity of filing state extensions this year. Schreiber recommends you up your due diligence scrutiny when preparing these extensions. Make sure your clients are aware that these are two different processes that could result in separate interest and penalties. Get detailed resources on due dates for state returns on the tax deadlines resources hub.

Bonus: Do your due diligence — “The old routine of preparing extensions is changing,” Schreiber said. “The uncertainty of existing tax laws and unreliable information from taxpayers make extra due diligence and preparation time for extensions necessary. CPAs must adapt and exercise more due diligence in the preparation and processing of extensions to avoid liability concerns and reduce taxpayer liability for penalties and interest.” The AICPA has due diligence checklists available to Tax Section members that address common tax return preparation concerns. For more checklists, compliance kits, practice guides and other useful resources, check out our hub for all things tax busy season.  

It doesn’t matter how compressed this season is or what kind of influence the recent government shutdown had on IRS processes; your job remains the same. You’ve been here before, and you know what it takes to get the best results for your clients. Whether it’s by April 15 or Oct. 15, we know you’ll get out there and make it happen for them.

Allison Carter Fanney, Communications Manager - Tax, Association of International Certified Professional Accountants 

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