There continues to be a misunderstanding among many Americans living abroad between the automatic extension for the filing of the 2002 US Federal individual income tax return, and the due date for making tax payments.

The due dates for filing the tax return, and the due dates for making tax payments, are inextricably tied to interest and penalties for failure to do so.

The due date for filing a 2002 US Federal individual income tax return is April 15, 2003.

If the tax return is not filed by April 15, 2003, the taxpayer is subject to a 5 percent monthly penalty for failure to timely file a tax return. The 5 percent penalty is based on the tax due with the return.

Thus, the automatic extension that allows US citizens living abroad until June 15, 2003 to file their 2002 US Federal individual income tax return, in essence absolves the taxpayer from the 5 percent underpayment penalty for 2 months.

The greatest misunderstanding is that the automatic extension in which to file your 2002 US Federal individual income tax return, only applies to the filing of the tax return, and does not apply to the payment of any tax due.

Any tax due relating to the 2002 US Federal individual income tax return must be paid on or before April 15, 2003.

Taxes due that are not paid by April 15, 2003 are subject to both interest and penalty that averages about percent a month. The second misunderstanding of the automatic extension in which to file the 2002 US Federal individual income tax return deals with the payment of the 2003 quarterly estimated tax payments. 2003 US Federal estimated tax payments must be made in April, June, September, and January of each year.

The automatic extension in which to file your 2002 US Federal individual income tax return, does not extend the time for the payment of the 1st quarter 2003 estimated tax payment.

If you have failed to pay any tax that may be due with your 2002 US Federal individual income tax return, or have failed to make your 1st quarter 2003 estimated tax payment, you should do so immediately.

This will stop the accruement of interest and penalty for the late payment of your 2002 tax, and the underpayment of your 2003 tax. Last year, we wrote about the growing number of US Federal individual income tax returns, that were being prepared outside the United States, by foreign nationals with little knowledge of US tax law, and the risk of identity theft of an individuals personal financial information in this process.

Name brand companies that specialise in the mass production of US tax returns, as well as the Big 4 accounting firms are preparing these tax returns.

Taxpayers are turning over their personal financial information to these firms and assuming that there are laws protecting their confidentiality.

Unfortunately, in some instances this is not the case. In a recent Associate Press business article, the headline read "Tax Returns Taking Passage Through India."

The article stated, "the accounting industry has recently begun using the burgeoning India outsourcing and technology markets to process American clients tax returns.

So information like your salary, your bank and brokerage statements, credit card information, and anything else that you might be submitting as part of your tax return could be going to companies abroad without your knowledge."

How prevalent is this? A spokesperson for Ernst & Young LLP indicated that the firm sends about 4% of its US tax returns to India for initial processing.

An additional question that an individual taxpayer who is looking for a third party to prepare their US tax return needs to ask himself or herself is whether they want to buy a product or a service?

Do they want their US Federal individual income tax return prepared at the lowest possible cost, or are they interested in engaging a firm to provide them with a service that includes both tax planning to minimise their US tax cost, as well as tax return preparation?

How do you timely file your 2002 US Federal individual income tax return when you are engaged in combat outside the city of Baghdad on April 15, 2003? This question was posed to us in an e-mail from a client a few days ago. The Internal Revenue Service anticipated this problem and grants and automatic 180-day extension of time for filing that begins to run after the taxpayer leaves the combat zone. A little known provision also allows the spouse to sign the taxpayers name on the 2002 US Federal individual income tax return, even if the spouse does not have a power of attorney.

The spouse simply has to attach a statement to the tax return explaining that their spouse is in a combat zone.

This waiver should significantly accelerate the payment of a refund claim.

This extension and signing waiver is also extended to civilian personnel attached to the Armed Forces in Iraq and Afghanistan, as well as "accredited correspondents."

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.