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State Denies Tax Extension, Businesses Caught Off Guard

Friday, October 15, 2010

 

Local businesses were caught off guard this week after suddenly learning that the state would not be granting them the same extension on their tax returns as the IRS is, leaving potentially thousands of Rhode Islanders with no choice but to pay hefty late fees.

“For this one time you can’t make an exception?” said Leonard Lardaro, an economist at the University of Rhode Island who is a vocal critic of how the tax climate in the state affects businesses. “To my mind this is absolutely embarrassing—that you can’t help people out in a bad time when they are really struggling.”

Many business owners and individual taxpayers got extensions until November 11 to file their federal tax returns. The state deadline normally matches the federal one, but the extended state deadline is October 15. Many taxpayers did not find out about it yesterday, according to Steven Monacelli, a prominent Rhode Island accountant with Restivo Monacelli, LLP.

Situation is unprecedented

With less than a day’s notice, Monacelli said taxpayers had no time to try to even scramble to make the deadline. “It’s just an impossibility to get all the information,” Monacelli told GoLocalProv. “You know you can’t do it. It’s not even possible to try to in most cases because most people have gone dark trying to get information for the later date.”

Another problem for taxpayers: the state returns cannot be completed without first doing the federal returns, according to Monacelli.

He said the situation has never happened in the 25 years he’s been in the business. “It’s a misalignment in due dates where traditionally the entire community of CPAs has relied on the state to piggyback on any federal due dates,” Monacelli said. “I think it’s unfair the state will not follow the feds. This is the first time in history I can remember this happening.”

Numerous businesses—everyone from law firms to restaurants and barber shops will be affected, according to Monacelli. Owners of any business that is a partnership, LLC, or S Corporation face the deadline, as well as individual taxpayers.

Stiff state penalties for late filers

Biting the bullet on late penalties will be painful. The state penalty for filing late is as much as 25 percent of the amount that is paid late. The state also charges 18 percent interest on overdue payments, while interest at the federal level is around 5 percent.

Accountants across the state were alerted to the unexpected state deadline yesterday in an 11 a.m. e-mail from David Morganelli, an attorney with Partridge Snow & Hahn, LLP and the head of the tax division for the Rhode Island Society of CPAs.

IRS ‘Programming error’

Amy Kempe, a spokeswoman for the state Division of Taxation said the IRS did not actually extend the deadline to November 11.

“Due to a programming error on behalf of the IRS the IRS will accept any returns on or before November 11 as timely,” Kempe told GoLocalProv. “Because the IRS did not extend the deadline … the Division of Taxation does not have the statutory authority to arbitrarily extend a deadline. The only time that they can do so under regulation is if the federal government extends the deadline.”

The error stems from the original extension granted because of the severe spring flooding. Rhode Island taxpayers were permitted to pay their taxes and file their returns on May 11 instead of April 15. Those who sought a six-month extension were inadvertently given six months from May 11 instead of April 15.

Lardaro says it’s another case of the state not being business friendly. "It not only is an indication of that but also sends a signal that 'We're not business friendly and proud of it,'" Lardaro said.

But Ed Mazze, a professor of business administration at the University of Rhode Island, disagreed, saying the state should not be blamed for the situation. He says accountants and their clients should have known better. “If they’re not smart enough to call the state and ask if there is an extension, then shame on them,” Mazze told GoLocalProv.
 

 

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