Timely mailed is timely filed

Today’s Tuesday Tax Tip is a Two-fer. First we’ll talk about what it means to file “timely.” Second, TODAY IS THE LAST DAY TO TIMELY FILE YOUR CORPORATION TAX RETURN FOR 2010!

PART I

What does it mean to “timely” file a tax return? Timely filing means that the tax return was delivered to the IRS on or before the due date of the tax return. Controlling the date of delivery is difficult if you are mailing your tax return. You have no control over how fast or slow the mail is delivered. Recognizing that individuals do not possess such control, there is a special provision in the Internal Revenue Code (IRC) that considers a tax return mailed on or before the due date to be delivered on the date of the postmark.

IRC Section 7502 provides that any tax return mailed on or before its due date and delivered to the IRS after the due date will be deemed filed on the date of the postmark on the ENVELOPE. This rule is commonly referred to as the “mailbox rule” because any document placed in the mailbox on OR BEFORE the due date will be considered delivered to the IRS on the date of postmark.

The Requirements

To qualify for the mailbox rule certain requirements must be met.

1. The tax return must be deposited with the United State Postal Service.

2. The tax return must be in an envelope or other wrapper, and must have proper postage applied or prepaid.

3. The envelope must be properly addressed to the IRS to allow for its delivery.

What about FedEx, UPS & DHL?

FedEx, UPS & DHL are the only three private delivery services that the IRS regulations allow to be treated on par with the U.S. Postal Service. So if the post office has closed and you can get to the local FedEx, UPS or DHL office before midnight, you can file with a private delivery service and still have a timely filed tax return.

Mailbox Rule Not Just for Tax Returns

The special mailbox rule applies to most items you are required to deliver to the IRS. It applieS to claims for refund, statements, documents, and most deposits or payments. Example: Your estimated tax payment is due on June 15^th and you place your check in a properly addressed, postage-paid envelope and deliver it to the post office while they are still open and receiving mail ON JUNE 15TH. The IRS receives your check on June 20^th. You will be deemed to have delivered the payment to the IRS on June 15^th.

The 21st Century

Many people prefer to send tax returns, payments and other documents electronically. Any tax return, payment or other document that is sent electronically will use the date of transmission as the postmark date.

PART II

CALENDAR YEAR CORPORATE TAX RETURNS ARE DUE TODAY!

Today’s To Do List:

1. File corporate tax return 2. If you can’t do #1, file an extension

3. If you can’t do #1 or #2, call Seid & Company, CPAs to do it for you.

Corporations are required to file their annual income tax return on the 15^th day of the third month after their year end. For calendar year corporations that makes today (March 15^th, 2011) the due date of the corporation’s 2010 income tax return.

Even though subchapter S corporations are flow-through entities with all of the corporate income and loss being reported by their individual shareholders, AN S corporation still follows the corporate filing deadlines rather than the individual filing deadlines. Subchapter S corporations must file their income tax returns for calendar year 2010 on March 15, 2011.

Tax Return not Done Yet?

If you are unable to complete your corporate tax return by the due date you can file an application for an extension of time to file. Don’t let the word “application” scare you into thinking maybe the IRS will not allow you an extension. The form to request an extension of time to file is Form 7004. The title of the form is “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.” It is a long title, but the important word in the title is “Automatic.” The IRS will automatically grant you a 5-month extension of time to file your corporation income tax return. For calendar year corporations that gives you until September 15^th, 2011 to file the tax return.

Can I Get an Extension of Time to Pay?

The extension of time to file is not an extension of time to pay. If there is any tax due on the tax return it must be paid on the original, unextended due date. Here’s the big tip for the extension: make your first estimated tax payment along with the extension. The first estimate is not due for another month. Any overpayment that exists when you finally file your corporate income tax return will have been made with the extension and treated as paid on March 15^th.

What Happens if I Don’t File on Time?

Failure to file an income tax return timely can result in penalties. For C corporations the penalty is 5% per month (or part of a month) of the underpayment on the due date of the tax return. The maximum penalty is 25%. Example: Procrastination Corporation owed $100 on March 15^th, 2011. They did not file an extension, but filed the tax return on April 1^st, 2011. Procrastination Corporation would owe a penalty of $5. 5% X $100 = $5.

The penalty is different for S corporations. Because S corporations generally do not pay any federal taxes, the penalty for filing late would always be $0. Some bright, young congressman figured out that if there were a penalty on S corporations filing late there would be additional revenue for the government and that could be used to pay for some part of other legislation being enacted at the time. The current penalty for filing an S corporation income tax return late is $195 per partner per month (or part of a month). The maximum number of months is 12. Example: Family S Corporation has four shareholders: Dad, Mom, Son & Daughter. The S corporation tax return for 2010 is filed six months late on September 1^st, 2011. No extension was filed. The penalty is $195 X 6 months X 4 shareholders = $4,680. Ouch! Had an extension been filed there would have been no penalty.

Need more information?

If you have questions on how to keep your tax returns and payments timely, contact the tax professionals at Seid & Company, CPAs. (805) 237-1040.