A common worry at filing time: if the number you put on your extension request turns out to be wrong, does the whole extension collapse — and could you lose a refund as a result? A 2026 Tax Court decision offers reassurance. A good-faith estimate that later proves inaccurate does not void your extension, as long as it was reasonable when you made it.
This is general information, not individual tax advice — the right treatment depends on your specific situation.
How a Tax Extension Actually Works
Filing Form 4868 gives you an automatic six-month extension to file your return — not to pay. You still owe any tax by the original deadline, and interest and penalties accrue on unpaid balances. Line 4 of the form asks for an "estimate of total tax liability" for the year. Many taxpayers panic over that line, unsure how precise it must be.
The Karp Case
In Karp, a couple filed a timely Form 4868 for 2016 and reported a $0 balance due, because tax payments and a large overpayment carried from prior years far exceeded their liability. Their actual gross liability was about $131,201, but they reasonably expected to owe nothing further. They later filed reporting a $336,558 overpayment to be applied to the next year. The IRS tried to deny the credit, but the Tax Court sided with the taxpayers: their estimate was made in good faith and was not unreasonable, so the extension stood — and with it, their right to the overpayment.
The Rule: Good Faith, Not Perfection
The standard is a bona fide, reasonable estimate based on the information you have — not a precise figure, and certainly not a reckless guess designed to game the system. Make a genuine effort using your records, and an honest miss will not be held against you. Enter a number you cannot support, and you invite trouble.
Why This Protects Your Refund
There is a deadline hiding here that catches people: the window to claim a refund generally closes three years after the return’s due date, including extensions. A valid extension pushes that date out. If a defective estimate could void the extension, it could also quietly slam the refund window shut. The Karp outcome keeps that window open for honest filers.
The VarStan Take
File the extension, make a reasonable good-faith estimate, and — this is the part people skip — pay as much as you can by the original deadline to limit interest and penalties, since the extension never delays payment. Keep proof of timely filing. We help clients estimate accurately, decide what to pay now versus later, and preserve every day of their refund window. An extension is a planning tool, not a red flag — when it is used correctly.
Related reading: SOC Reports Explained for Small Businesses and What to Do If the IRS Audits Your Small Business: A CPA’s Survival Guide.