LINDA LINGLEKURT KAWAFUCHIGOVERNORDIRECTOR OF TAXATIONJAMES R. AIONA, JR.

SANDRA L. YAHIRO

LT. GOVERNOR

DEPUTY DIRECTOR

STATE OF HAWAII

DEPARTMENT OF TAXATIONP.O. BOX 259
HONOLULU, HAWAII 96809
PHONE NO: (808) 587-1510
FAX NO: (808) 587-1560

October 19, 2007

DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2007-20
RE: Extensions of Time to File Income Tax Returns.
The Department has amended section 18-235-98, Hawaii Administrative Rules ("HAR"),with the amendments effective as of October 6, 2007. The amended rules apply to any income
tax return required to be filed on or after October 6, 20071, without regard to any extensions.
The version of section 18-235-98, HAR in effect prior to October 6, 2007 applies to any income
tax returns required to be filed before October 6, 2007, without regard to any extensions. For
more information regarding the rules in effect prior to October 6, 2007, please refer toDepartment of Taxation Announcement No. 2007-18.
In other words, if an individual's taxable year ends on December 31, 2006, the income tax
return would become due on April 20, 2007, without regard to any extension; and therefore, theprevious extension rules apply to that income tax return. If a taxpayer's taxable year ends onJune 30, 2007, its income tax returns would be subject to the amended rules, effective as ofOctober 6, 2007, because the income tax would first become due on October 20, 2007.
The amended rules provide for automatically granted six-month extensions of time to fileincome tax returns if certain conditions are met.
REQUIREMENTS FOR INDIVIDUAL TAXPAYERS
Individuals are automatically granted a six-month extension without the need to file
anything with the Department unless an additional tax payment must be made on or before April
20. As long as the following conditions are met, an individual taxpayer is deemed to have madean application for the six-month extension to file income tax returns on the prescribed due date:
1. On or before April 20th, 100% of the properly estimated tax liability is paid (seediscussion below);
2. The tax return is filed on or before the expiration of the six-month extension
period;3. The tax return is accompanied by full payment of any tax not already paid; and1

In general, income tax returns are due on or before the 20th day of the fourth month following the close of thetaxable year unless the 20th day falls on a weekend or legal holiday, in which case the due date is the next business
day following the 20th day. See § 235-97(b), HRS;§ 231-21, HRS. For purposes of this announcement, it isassumed that the 20th day does not fall on a weekend or legal holiday.

Department of Taxation Announcement No. 2007-20
October 19, 2007
Page 2 of 5
4. The taxpayer is not bound by a court order to file a tax return on or before theprescribed due date.
If the individual must make an additional payment of tax on or before April 20 in order to meetthe condition requiring payment of 100% of the properly estimated tax liability, the individual
must attach Form N-101A to the payment.
REMINDER: An extension of time to file an income tax return is not an extension of time topay the income tax liability. Interest will accrue on any tax liability not paid on or before April20.
WARNING: Failure to meet any of the conditions will result in the extension being deemedinvalid and penalties and interest shall be assessed on the amount of tax owed as if no extension
had been granted. In that case, penalties and interest will be imposed from April 20.
REQUIREMENTS FOR PARTNERSHIPS, ESTATES, TRUSTS, OR REMICs
Partnerships, estates, trusts, or real estate mortgage investment conduits are granted a sixmonth extension if the following conditions are met:
1. An application for automatic extension (Form N-100) is filed on or before the due
date prescribed by statute for filing the return, showing the full amount ofproperly estimated tax liability;
2. On or before the 20th day of the fourth month following the close of the taxable
year, 100% of the properly estimated tax liability, if any, is paid (see discussionbelow);
3. The tax return is filed on or before the expiration of the six-month extension
period;4. The tax return is accompanied by full payment of any tax not already paid; and5. The taxpayer is not bound by a court order to file a tax return on or before theprescribed due date.
REMINDER: An extension of time to file an income tax return is not an extension of time to
pay the income tax liability. Interest will accrue on any tax liability not paid on or before the20th day of the fourth month following the end of the taxable year.
WARNING: Failure to meet any of the conditions will result in the extension being deemedinvalid and penalties and interest shall be assessed on the amount of tax owed as if no extension
had been granted. In that case, penalties and interest will be imposed from April 20 or theoriginal due date for a fiscal year filer.
REQUIREMENTS FOR CORPORATIONS
Corporations are granted a six-month extension if the following conditions are met:
1. An application for automatic extension (Form N-301) is filed on or before the due
date prescribed by statute for filing the return;
2. On or before the 20th day of the fourth month following the close of the taxable
year, 100% of the properly estimated tax liability is paid (see discussion below);Department of Taxation Announcement No. 2007-20
October 19, 2007
Page 3 of 5
3. The tax return is filed on or before the expiration of the six-month extension
period;4. The tax return is accompanied by full payment of any tax not already paid; and5. The taxpayer is not bound by a court order to file a tax return on or before theprescribed due date.
REMINDER: An extension of time to file an income tax return is not an extension of time topay your income tax liability. Interest will accrue on any tax liability not paid on or before the20th day of the fourth month following the end of the taxable year.
WARNING: Failure to meet any of the conditions will result in the extension being deemedinvalid and penalties and interest shall be assessed on the amount of tax owed as if no extension
had been granted. In that case, penalties and interest will be imposed from April 20 or theoriginal due date for a fiscal year filer.
NO SIGNATURES REQUIRED ON APPLICATIONS FOR EXTENSIONS
No signature is required on any application filed by a taxpayer requesting an automatic
six-month extension of time to file income tax returns. The forms will be revised in the future toreflect this change.
USE OF CURRENT FORMS AFTER THE EFFECTIVE DATEOf the forms currently used to request extensions (Forms N-100, N-100A, N-101A, N101B, and N-301), only Forms N-100, N-101A, or N-301 should be used to request a six-monthextension for taxable years ending on or after June 30, 2007, even though these forms may
indicate an extension period of less than six months.
PROPERLY ESTIMATED TAX LIABILITY CONDITION
All taxpayers must meet the condition of paying 100% of their properly estimated tax
liability by April 20 or, if the taxpayer is a fiscal year filer, the 20th day of the fourth monthfollowing the end of the taxable year.
Properly estimated tax liability means the taxpayer made a bona fide and reasonableattempt at the time the extension was submitted to locate and gather all of the necessary
information to make a proper estimate of tax liability for the taxable year. Individuals not filing
Form N-101A are deemed to have submitted the extension on April 20 for purpose of thiscondition.
Whether a taxpayer has properly estimated the tax liability depends upon the facts andcircumstances present in each individual case. The Department understands that the need for anextension may arise from a taxpayer having to wait for other entities to account for the taxable
year, for example, partners waiting for a partnership to issue a K-1. Nevertheless, the rules
require the taxpayer to make an honest and reasonable attempt to gather all informationnecessary to estimate its tax liability and to pay that estimated tax liability by the original due
date of the return.

Department of Taxation Announcement No. 2007-20
October 19, 2007
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In order to give taxpayers some certainty regarding this condition, the taxpayer will be
presumed to have met the condition if the amount paid by the original due date is 90% or moreof the amount of tax as shown on the tax return.
If the amount paid by the original due date is less than 90% of the amount of tax asshown on the tax return, the taxpayer will have the burden of proving that the taxes paid on or
before the original due date were based upon a proper estimate of income tax liability. In suchcases, a taxpayer may submit a statement signed under penalty of perjury with its tax returnexplaining how the payment of tax on or before the original due date was based upon a proper
estimate of tax liability. This statement should be a cover letter attached to the first page of thereturn.
For ease of administration, the department may automatically assess penalties and interestin circumstances where less than 90% of the taxes shown on the tax return were paid on or
before the original due date. If a taxpayer receives a notice assessing penalties and interest forthis reason and the taxpayer believes that a proper estimate of tax liability was made, thetaxpayer should submit a statement signed under penalty of perjury explaining how the paymentof tax on or before the original due date was based upon a proper estimate of tax liability. If ataxpayer demonstrates that the amount paid by the original due date constituted 100% of theproperly estimated tax liability as of the original due date, the penalties and any interest
associated with the penalties will be reversed.
CONFORMITY TO THE FEDERAL FILING EXTENSION RULESTo the extent possible, the Hawaii rules conform to the federal rules that provide
extensions of time to file income tax returns. Minor formal differences still exist due largely tothe difference in penalty provisions.
Unlike the Hawaii extension rules, the federal rules do not explicitly condition the grantof an extension to file upon the payment of the properly estimated tax liability (except in the caseof corporations). However, federal law still requires full payment of tax by the original due date,unless a separate extension of time to pay tax is granted.
The reason that the Hawaii rules must condition the grant of an extension upon thepayment of properly estimated tax liability is because the Hawaii Revised Statutes do not containa failure to pay penalty substantially similar to the federal income tax penalty. If a taxpayer fails
to make a full payment of federal income tax by the original due date, the federal taxpayer isassessed a penalty unless the taxpayer can demonstrate that the failure to pay was due toreasonable cause and not willful neglect. For purposes of federal income tax, reasonable cause ispresumed, for the period of an extension of time to file, if (i) the excess of the amount of tax
shown on the individual income tax return over the amount of tax paid on or before the regulardue date of the return is no greater than 10 percent of the amount of the tax shown on theindividual income tax return and (ii) any balance due shown on the individual income tax returnis remitted with the return. Although the path is different, the outcome is the same for Hawaii
income tax purposes. If an individual Hawaii taxpayer meets the same two conditions in relation
to its Hawaii income tax liability, then the individual Hawaii taxpayer will not be subject to apenalty.

Department of Taxation Announcement No. 2007-20
October 19, 2007
Page 5 of 5
Another minor difference from the federal income tax extension rules is that Hawaii
individual taxpayers are not required to file an application in order to request an extension oftime to file a Hawaii income tax return, but all other taxpayers must file an application to request
an extension. For federal income tax purposes, all taxpayers, including individuals, must file anapplication to request an extension.
In conformity with the federal rules that provide extensions of time to file income tax
returns, applications for an extension of time to file a Hawaii income tax return no longer requirea signature.
ADDITIONAL INFORMATION
For more information, please contact the Rules Office at 808-587-1577.

KURT KAWAFUCHI
Director of Taxation