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In my previous question, I explained that the IRS still has yet to process my 2019 return, my first filing, which means I won't receive any 2021 stimulus (EIP 3) if its calculation is based upon my 2019 income.

I have significant income from foreign bank account interest. I have an idea of how much it should be, and my 2020 income should put me within the threshold of EIP 3, but I'm unable to accurately determine the amount of that income (I can't log into their online banking portal and I don't think it's a good idea to travel back to visit a branch to reset my password/get my bank statements).

Is it legal for me to file my 1040 timely with a significant overestimation of my income, overpay tax, and file 1040-X for a refund of the overpayment once I can accurately determine the actual amount of my income? Would this manoeuvre still be legal if I received EIP 3 before filing 1040-X?

Upon further examination, my comment on my previous question that my 2020 income would phase out of EIP 3 is incorrect, and my income will stay within the threshold with buffer to spare.

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  • Are US taxes withheld from that "significant income from foreign bank account interest"? If not, then you probably need to file quarterly estimated taxes. (And the IRS has rules on what to do when such income is hard to forecast.) – RonJohn Feb 19 at 16:34
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    @RonJohn No withholding, but I did pay quarterly estimated tax throughout 2020 based upon 100% of my 2019 tax liability, so I didn't need to forecast my 2020 foreign bank account interest income. – user106227 Feb 19 at 16:42
  • Just keep making quarterly payments. They don't have to be equal, and the IRS has guidance for people with variable income. – RonJohn Feb 19 at 16:55
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    I am pretty sure the IRS will be unhappy about introduction of any intentional inaccuracy... but what I have learned and is important to understand is that any penalty you are likely to incur due to delay or inaccuracy is based on the net amount OWED. That is, overpayment is always more forgiving than underpayment. I was scared to death of the consequence of failing to file (clerical error on my part) until I discovered ALL the penalties are based on the amount OWED... and in my case I was due a refund. Indeed, once I discovered my error, I was able to claim MORE deductions. – Steven the Easily Amused Feb 20 at 1:00
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We don’t know yet what any future stimulus payment will be based on. Even if we assume that it will be based on the 2019 return, there may or may not be a backup plan of using the 2018 or 2020 information if 2019 is unavailable. (That is how previous payments worked.) You also don’t know when your 2019 return will be processed; it could be today. We just don’t know anything yet. I do not recommend trying to force this and creating more work for yourself.

As I said in an answer to your previous question, if you miss out on the stimulus payment, it will most likely ultimately be made right next year at tax time. Be patient, and be thankful that your income is high enough where you are not depending on this payment to survive.

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  • Ben - for what it's worth, I did not receive the current $600 payments, but they show as a credit on my 2020 return. I understand the $1400 will have the same path, i.e. if 2019 income was below threshold, a payment is made, if not, the 2020 return can get the credit. The current stimulus also appears to have $1400 for my adult college dependant. That should total $5400. – JTP - Apologise to Monica Feb 19 at 17:41
  • Thanks. (1) I agree that "we just don't know anything yet" about EIB 3 and the progress of my 2019 tax return, but I don't feel that not knowing should be the only reason to discourage me from planning ahead. For instance, I contributed the full amount to my Roth IRA while "not knowing anything yet" what my 2021 income would be -- and I don't think that's inadvisable. – user106227 Feb 19 at 18:14
  • (2) I asked the question in bold because I was wondering about the legality of the strategy of filing an overestimate of income. I fully appreciate that if I did pursue this strategy, you may think I acted unsavorily, but I'm wondering whether I would be acting illegally. – user106227 Feb 19 at 18:15
  • @user106227 - 1. At least with the Roth, you know the rules. But with regards to this stimulus payment, you are trying to hit a target that hasn’t even been hung up yet. 2. I didn’t really attempt to answer that question. My answer here is more of a frame challenge answer. See Grade ‘Eh’ Bacon’s post for a much better answer to your actual question. – Ben Miller - Remember Monica Feb 19 at 18:28
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    @user102008 Yes, I understand that. But if you find yourself in that situation, then perhaps you could just be content with your high income and leave the government handouts for those who really need them. – Ben Miller - Remember Monica Feb 19 at 19:28
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If you are unsure of your income, you could pay an estimate or overestimate on Tax Day and use Form 4868 to request an automatic extension to file your return. The IRS does not want people to file knowingly incorrect/incomplete tax returns, so they offer this convenient, automatic extension.

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I'm very appreciative of everyone who pitched in, and wish to reassure everyone that I too don't find this avenue of "forcing" my EIP 3 to be a particularly attractive one, if not just because it causes logistical headaches.

To my question, though, I think the IRS wouldn't assess a penalty on my strategy. Here's what I found from researching the Internal Revenue Manual (none of this is legal advice).

  • IRM 20.1.5.4.2, IRC §6662, provides an accuracy penalty of 20% of the underpayment, but I don't find any mention of a penalty on an overpayment, even an intentional one.
  • Even if I'm assessed an accuracy penalty, IRM 20.1.1.3.2.2.3 provides a reasonable cause defence by the inability to obtain records that could abate the penalty in my specific case. The examiner would consider the following evidence:
    • Why the records were needed to comply.
    • Why the records were unavailable and what steps were taken to secure the records.
    • When and how the taxpayer became aware that he or she did not have the necessary records.
    • If other means were explored to secure needed information.
    • Why the taxpayer did not estimate the information. [which suggests to me that my return is supposed to estimate missing information.]
    • If the taxpayer contacted the IRS for instructions on what to do about missing information.
    • If the taxpayer promptly complied once the missing information was received.
    • Supporting documentation such as copies of letters written and responses received in an effort to get the needed information.

I haven't yet found anything in the IRM or IRC that would clarify the following questions, so if you do, please feel free to comment:

  • How persuasive is it that I file an estimate well before the deadline, or at least without requesting an extension? Grade Eh Bacon's answer alluded to this question.
  • Is there any instruction / IRM guidance beyond the item I bolded above that explicitly says I should estimate? Grade Eh Bacon suggests this for W-2, but how about for other forms?
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  • In a separate comment above, I can confirm from experience that while the IRS may have tools to prosecute for NON or LATE or INACCURATE FILING, the penalties are based on the net amount of tax OWED. If your estimate is a "reasonable maximum" (not a "purposeful overstatement") I think you are in the clear. Finally, remember that many separate issues may add to or subtract from your income... and due to the penalties related to underpayment, your best solution is to estimate HIGH on income and LOW on deductions absent factual data. But this should be an ESTIMATED payment, not a false return. – Steven the Easily Amused Feb 20 at 1:13
  • This is a great answer, very well supported. I've deleted my own answer in light of this, which is much more detailed. – Grade 'Eh' Bacon Feb 22 at 13:56
  • As to your last comment asking if there is specific guidance 'to' estimate - I couldn't find anything quickly (though my search was quite brief so it might be there), however, personally if it were me, I would find great comfort in that guidance, even though it refers specifically to W2. I have included the link again in this comment [irs.gov/newsroom/what-to-do-if-you-are-missing-a-w-2], as I have since deleted my answer which I feel is superseded by what you have added. – Grade 'Eh' Bacon Feb 22 at 13:58

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