More Taxpayers Getting Extensions of April Deadline

Respect for the April 15 tax filing deadline is eroding as more and more taxpayers ask the Internal Revenue Service for an automatic four-month extension, Treasury Department investigators say in a new report.

The study, conducted by the Treasury Department’s inspector general, also uncovered a group of high-income taxpayers who chronically take advantage of the extensions to pay their taxes late.

That group of 1 million taxpayers reported income that averaged $104,000, more than twice the average taxpayer. Many had some self-employment income, and most used paid professionals to prepare their taxes. More than 17% had paid no taxes by April 15.

“The cumulative effect of these problems could erode public confidence in the fairness of the tax system,” the investigators concluded.

The IRS will grant anyone who fills out a short form a four-month extension to file his or her taxes. Those with a specific hardship who cannot file by the later deadline of Aug. 15 can fill out a second form and request an additional two months.

During the 2003 filing season, 8.5 million taxpayers asked for extensions until Aug. 15. The IRS expects more than 3 million of those people to ask for two months more.

In 1993, fewer than 6 million taxpayers sought a four-month extension to Aug. 15.

People who file for extensions are required to pay their taxes on time, but many taxpayers requesting extensions do not pay their full bill by April 15.

About 99% of taxpayers who file by the April 15 deadline pay their taxes on time. Only half of the taxpayers with extensions had paid their taxes by April 15 and filed their returns by the new due date.

Those who file late are subject to penalties and interest payments. But those who file extensions do not have to pay a hefty delinquency penalty of 5% a month.

The investigators concluded that the extension is the “strategy of choice” for those unable or unwilling to pay by April 15.

The result, investigators said, is inefficiency. The IRS wastes time and money -- as much as $8.4 million a year -- processing the forms. And the government pays more interest on its debt when tax revenue comes in after the end of the fiscal year.

If all expected late tax payments between 2004 and 2008 were collected on time and used to reduce the federal debt, the government’s interest expenses would be reduced $2.4 billion.