Some people need extra time to file a personal tax return or an estate tax return. On your personal income taxes, you can apply for an automatic extension to file but it doesn’t extend the time to pay. You will have to pay a .5% per month penalty for late payment.
With the payment of estate taxes, you can also apply to receive a 6 month extension. The extension provided for in IRS Form 4768 is automatic. You will automatically receive an extension to file for 6 months however be aware that an extension of time to file is not an extension of time to pay the taxes. An extension of time to pay is discretionary.
One executor and trustee of an estate found this out the hard way. In a court case entitled Baccei v. United States, a trustee of a revocable living trust hired an accountant to prepare the Federal estate tax return. The accountant filed Form 4768 requesting a 6 month extension of time to file the return. Part of the form contains a section for an explanation as to why the estate needs more time to pay the tax and the number of months requested, up to 12 months. The accountant did not fill out that part of the form. Within 6 months, the accountant filed the return and paid the estate tax. The IRS then assessed a late penalty on the estate tax paid which had been approximately $1 ½ million. The Trustee appealed.
The Court which heard the matter held that the estate had not requested an extension to pay, only to file, and therefore the late penalty was proper. The two extensions found in Form 4768 are separate extensions and have to be separately requested.
Filing and paying tax returns for an estate is one of the jobs of the executor of a will or the trustee of a trust. If you are the executor of an estate or the trustee of a trust, these are part of your fiduciary duties. Our office handles numerous probates and trust administrations in which we assist executors or trustees with these types of duties. If we can be of assistance, please contact us.