Last Minute Filing: How To Guarantee Timely Filing With The IRS

There are many reasons for waiting until the last minute to meet an IRS deadline.  You may be having trouble getting your documents together or you may be searching for an attorney to represent you in Tax Court. No matter if you are running late out of necessity or out of procrastination, the consequences for missing an IRS deadline range from minor to drastic depending on the type of filing. 

For example, if you miss the deadline to file a tax return, a late filing means a late filing penalty. On the other hand, the consequences for missing the deadline to file a petition in Tax Court in order to contest an IRS notice of deficiency are severe. Taxpayers only have 90 days to file a Tax Court petition and if the deadline is missed, the Tax Court will not have jurisdiction to hear your case. Your only remaining option is to pay the tax owed and file suit in either the United State District Court or the Court of Claims. 

In order to determine whether a filing is timely, the IRS follows the "timely mailing treated as timely filing/paying rule" (26 USC Section 7502). This rule states that a tax return (or other document) required to be filed (or payment to be made) with the IRS (or Tax Court) is timely filed if:

1. The date of the U.S. Postal Service postmark is no later than the due date (or the date of its extension), 
2. The return is properly addressed and 
3. Has proper postage. 

If, on the other hand, the filing has a postmark after the due date, it is considered filed on the date that it is received by the IRS. 

According to 26 USC Section 7502 (c), if a return or other document is sent by United States registered mail, registration shall be prima facie evidence (accepted as correct) that the return or other document was delivered and the date of registration shall be deemed the postmark date. 

Furthermore, the IRS has only a handful of approved private-delivery services which will meet the "timely mailing as timely filing/paying" rule (see Internal Revenue Bulletin: 2004-83). 

• DHL Express (DHL): DHL Same Day Service.
• Federal Express (FedEx): 
• FedEx Priority Overnight
• FedEx Standard Overnight
• FedEx 2Day
• FedEx International Priority
• FedEx International First
• United Parcel Service (UPS): 
• UPS Next Day Air
• UPS Next Day Air Saver
• UPS 2nd Day Air
• UPS 2nd Day Air A.M.
• UPS Worldwide Express Plus 
• UPS Worldwide Express

If your private-delivery service provider is not on this list, neither the IRS nor the Tax Court will make an exception for you. This point can be illustrated by a recent Tax Court case, Scaggs v.s Commissioner of Internal Revenue. In this case the taxpayers used FedEx Airbill "Express Saver Third business day" to mail their Tax Court petition. The court held that since the private-delivery service used was not on the approved list, the petition was not filed within the requisite period prescribed by section 6213(a) and their case was dismissed for lack of jurisdiction. 

It is important to note that if you file your tax return online (e-file) it is not considered filed until you receive an IRS acknowledgement of acceptance. Since this could take up to two days, don't rely on electronic filing if you are filing your tax return last minute.  If your return was e filed on time but was rejected after the deadline, your return will be considered timely if it is corrected and re-e filed again within 5 business days or printed and mailed to the IRS within 10 days. 

Update 6/7/13: the "timely mailing as timely filing/paying" rule does not apply to FBARs which must be received by June 30th (see instructions to form TD F 90-22.1). Likewise, when dealing directly with an IRS officer or agent, clarify beforehand whether they expect the document mailed by or received by the deadline they set (thank you to tax attorney Michael A. Lampert for bringing these exception to my attention). 

This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Does Your Home Office Qualify for a Home Office Deduction?

If you work from home (a house, condo, apartment or boat), you may be able to claim the home office deduction.  If certain requirements are met, this deduction is available to both self-employed individuals and employees.  In order to qualify, (1) the area used as a home office must be used, regularly and exclusively, for your business and (2) the business portion of the home must be either your principal place of business or where you meet or deal with patients, clients or customers in the normal course of business (therefore, if you do meet with clients at your home office, keep a log listing which clients you met with on which days). 

The "regularly and exclusively" requirement is probably the biggest barrier to using the deduction.  The area used as an office is usually a separate room or, if the division is clear, a section of a room may qualify.  The most important point is that personal activities must be excluded from the business section.  For example, an attorney who uses  a room in her home 10 hours a day, 7 days a week as an office will not be able to claim the home office deduction if her children are allowed to do their homework in that room.  

Nevertheless, there are two exceptions to exclusive use.  The exclusive use test does not have to be met if you use part of your home to store inventory or product samples or as a daycare facility.  To read more about these uses, take a look at IRS Publication 587.

This deduction is easier for self-employed individuals to claims than for employees because an employee's use of a home office must also be for the convenience of his or her employer.  For example, if the employer does not provide an employee with a work space at the employer's location, the employee may be entitled to a deduction for maintaining a home office.  If office space is provided by the employer and the employee also choose to work from home, the home office is not considered for the convince of the employer. Furthermore, the employee cannot rent any part of his or her home to the employer and then use the rented portion to perform services for the employer.  

If your use of a home office qualifies, some of the expenses that you are entitled to deduct include (1) a portion of your real estate taxes, (2) deductible mortgage interest (be careful not claim this interest twice), (3) rent, (4) utilities, (5) homeowner's or renter's insurance, (6) depreciation of your home and (7) painting and repairs (not permanent improvements).  If you make permanent improvements to your home, the value of these improvements is added to your basis in the home and can be recovered through depreciation.  If you choose to depreciate your home office, there may be consequences when you decide to sell the home. 

In order to calculate the deductible amount, determine the percentage of your home used for business and apply that percentage to the deductible expenses. For example, if the total area of your home is 2,000 square feet and your office is 200 square feet, the business percentage is 10%.  

If you are self-employed, you would use form 8829 to figure out your home office deduction and would report the deduction on your schedule C.  

Employees, on the other hand, would claim these costs as miscellaneous itemized deductions on their schedule A and these expenses must exceed 2% of the employee's adjusted gross income before they can be deducted.  Therefore, if you earn $60,000 per year, the first $1,200 of your expenses cannot be deducted.  If your total eligible deductions are $12,000 and your business percentage is 10%, that means you are left with no deduction.  

Finally, it is worth mentioning that the home office deduction has been subject to scrutiny because many believe that taking the deduction could trigger an audit.  This is most likely no longer the case as a result of changes made in the late 1990s.  Nevertheless, there is a lot of potential for abuse with this deduction, so it is important to keep proper records to back up this deduction in the event that you are audited.  You should use this deduction if you are entitled to it and can prove it in case of an audit.

For more information on claiming the home office deduction or for answers to your specific questions, take a look at IRS Publication 587.

This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional. 

Who Qualifies as a Dependent: A Road-map.

A lot of my clients ask who can they claim as a dependent and this question is not as easy to answer as it seems. The IRS has created a rather complicated test with many exceptions that is difficult to follow. Therefore, if you are trying to qualify someone as a dependent, I urge you to review Publication 501. Although this publication is not a quick read, it provides the most in-depth explanation and many helpful examples regarding who qualifies as a dependent. This post is meant to provide merely a cursory overview of the rules in order to paint a road-map to understanding this concept. 

(A) The following three tests must be met first: 

•  Dependent Taxpayer Test: you (or your spouse, if filing jointly) cannot be claimed as a dependent by another taxpayer. AND 
• Joint Return Test: you cannot claim a married person who files a joint return as a dependent unless that joint return is merely a claim for refund (no tax liability is owed). AND 
• Citizen or Resident Test: you cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico. Note: there are minor exception to these rules that may apply to your specific situation so, again, I urge you to review publication 501. 

(B) If all three of the above tests are met, the person that you intend to claim as a dependent must either be a Qualifying Child or a Qualifying Relative. This means that if your child does not qualify under the Qualifying Child test, he or she may be a Qualifying Relative. 

Qualifying Child: there are five tests that must be met for a child to qualify. 

• Relationship: The child is your son, daughter, stepchild, foster child or a descendant of any of them (such as a grandchild). OR The child is your brother, sister, half brother or sister, stepbrother or stepsister or a decedent (such as your niece or nephew). AND 
• Age: The child must be under age 19 at the end of the year and younger than you (or your spouse if filing jointly). OR A full-time student under age 24 at the end of the year and younger than you (or your spouse if filing jointly). OR Permanently and totally disabled (at any time during the year). AND 
• Residency: the child must have lived with your for more than half the year. There are exceptions to this rule for temporary absences, children who were born or died during the year, children who were kidnapped and children of divorced or separated parents (please review publication 501). AND 
• Support: the child cannot have provided more than half of his or her own support for the year. AND 
• Joint Return: the child cannot file a joint return for the year (unless the child and his or her spouse file a joint return only as a claim for refund). 

Qualifying Relative: there are four tests that must be met for a person to qualify as your dependent. 

• Not a qualifying child Test: the person must not be a Qualifying Child of either you or another taxpayer. AND 
• Member of household OR Relationship Test: the person must either live with you all year as a member of your household OR be related to you in one of the following ways: Your child, stepchild, foster child or a descendant of any of them (such as a grandchild) OR Your brother, sister half brother or sister, stepbrother or stepsister. OR Your father, mother, stepfather or stepmother, grandparent, or other direct ancestor (but not foster parent) OR A son or daughter of your brother or sister (or of your half brother or half sister) OR A brother or sister of your father or mother OR your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law (please note that death or divorce does not end relationships that were established by marriage). AND 
• Gross Income Test: a person's gross income for the year must be less than $3,700 (please note that the IRS provides specific rules regarding what qualifies as gross income-see publication 501). AND 
• Support Test: you must provide more than half of a person's total support during the year. If two or more persons provide support but no one person provides more than half of the person's total support, a Multiple Support Declaration many need to be prepared (please review Publication 501 for instructions). 

This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.