IRS Tightens Loophole on Filing Delays

Planning to visit Mexico, Canada or some other foreign country for a few hours on April 15 so you can postpone paying your taxes? Thanks to new Internal Revenue Service rules announced Monday, this tactic will be much harder to pull off.

The new rules, to take effect for the current tax filing season, will require that taxpayers be abroad for 14 continuous days, including April 15, to get an automatic two-month extension on paying their taxes and filing returns.

Previously, there was no minimum requirement for being out of the United States and Puerto Rico to earn this extension. That prompted such extreme examples as Southern Californians simply having lunch in Tijuana on April 15, or Detroit residents dining in Windsor, Canada.

The new rules get even tougher for next year’s tax filing season. The IRS then will disallow automatic extensions for foreign trips, regardless of the consecutive number of days abroad.

Instead, beginning next year, extensions for being out of the country will be granted on a case-by-case basis, based on “reasonable cause.” For example, a family emergency forcing a taxpayer to leave the country just before April 15 might be accepted. To claim out-of-the-country extensions next year, as with this year, taxpayers must include a brief note of explanation along with their return.

‘Abuses in Border Areas’

Monday’s move, coming during the peak of the tax filing season, “was triggered because of abuses in border areas,” IRS spokesman Wilson Fadely said.

However, the move may also have been fueled by recent Continental Airlines advertisements urging taxpayers to fly abroad to earn a tax extension, some tax experts suggested.

“That kind of publicity is too much for the IRS,” said one official of a large accounting firm. To allow wealthier taxpayers who can afford to fly abroad to get extensions, while lower-income people can’t, “just doesn’t sound good to the public,” the official said.

The IRS, however, denied that its move was spurred by the Continental ads. A Continental spokesman said the ads stopped running last week, adding that he doubted that very many taxpayers booked international trips just to escape paying taxes for two months.

The new IRS rules will encourage taxpayers to seek extensions by filing Form 4868, Fadely said. Such extensions, for four months instead of two, are granted without any explanation from taxpayers. However, these extensions are only for the filing of returns and not for payment of tax owed.