Automatic extension rules eased.

Before 1992, taxpayers who wanted an automatic four-month extension to the April 15 due date of their individual tax returns had to file form 4868 and pay their estimated outstanding tax liability in full. If this tax was not paid or did not accompany form 4868, taxpayers were assessed a late-filing penalty.

Under new rules announced earlier this year, taxpayers need not pay the tax until the four-month extension period ends--August 15, 1993, for 1992 returns. Although the late-filing penalty is now waived, taxpayers still owe interest from the due date--April 15, 1993--until payment is made.

According to Internal Revenue Service notice 93-22, this relief is available to taxpayers who make a good-faith effort to properly calculate the appropriate tax when filing for the extension. If the calculation is too low, the extension request will, as in the past, be disallowed and a late-filing penalty assessed.

The relief provision does not apply to the late-payment penalty (as opposed to the late-filing penalty). The late-payment penalty still applies unless the taxpayer pays at least 90% of the actual tax bill before the original due date, either through withholding, estimated tax payments or with form 4868.

Observation: Taxpayers unable to pay their outstanding taxes at the end of the automatic fourmonth extension should attach Form 9465, Installment Agreement Request, to their returns. The IRS will attempt to arrange an installment payment plan that reflects the taxpayer's ability to pay.

Taxpayers who cannot complete their returns before the extension agreement expires should file form 2688 (additional extension request) before the extension ends.