By Linda Keith CPA
Stacie Clifford Kitts, CPA, covers the rules for extending the corporate deadline without paying taxes owed for the year in her July 2009 blogpost: Extend the Due Date to Pay Your Corporate Income Taxes.
Normally, a tax return extension is only an extension of time to FILE, not an extension of time to PAY. The taxpayer must pay any expected taxes with their business or their personal return extension request. If the business expects a Net Operating Loss carryback, though, they want to avoid using precious cashflow to pay taxes now that they know they will get back later.
In the credit analysis training I do with lenders, we are always looking for clues as to how the business is really doing and what their expectations are. This could be a good one.
If a corporate borrower says they have extended their tax return and you are iffy on their loan request, ask if they have filed a Form 1138 Extension of Time for Payment of Taxes by a Corporation Expecting a Net Operating Loss Carryback. If so, get a copy and look at Line 5 where they must give the reasons, facts, and circumstances that cause the corporation to expect an NOL.
That should be a candid look at their expectations.
As always, recognize that the Form 1138 and all other tax forms are a moment in time. Expectations may have changed since they filed the Form 1138. Time to talk to the borrower.
What other less traditional clues have you found to what the business expects to happen next?