As with Everything, COVID-19 is Impacting Federal Taxation
90-Day Postponement of the Filing Due Date
As expected, the IRS issued Notice 2020-18 late Friday night formally extended the filing due date for income tax returns normally due on April 15, 2020 to July 15, 2020 to match the 90-day postponement of the payment due date announced earlier in the week in Notice 2020-17.
Notice 2020-18 applies to any person with a Federal income tax return due on April 15, 2020. A person includes an individual, a trust, estate, partnership, association, company, or corporation.
No More Cap on the 90-Day Postponement of the Payment Due Date
Notice 2020-18 also supersedes Notice 2020-17 by removing the initial cap on the 90-day postponement of the payment due date (a restatement and expansion of Notice 2020-17). In Notice 2020-17 the applicable postponement amount was originally capped is $10 million for C corporations and $1 million for other taxpayers (individuals, trusts, and estates) regardless of filing status. However, Notice 2020-18 removes those caps and states that “[t]here is no limitation on the amount of the payment that may be postponed.”
Takeaways on Notice 2020-18
- Similar to Notice 2020-17, it only applies to income tax payments due on April 15, 2020 (including payment of tax on self-employment income) for the 2019 tax year and estimated tax payments due on April 15, 2020 for the 2020 tax year. The postponement does not apply to estimated tax payments for the second quarter due on June 15, 2020.
- The filing due date extension to July 15, 2020 is automatic. Taxpayers do not need to file a Form 4868 or 7004.
- If you do not think you will be able to file your return by July 15, 2020, you should file an extension (Form 4868 or 7004) on or before July 15, 2020, extending the filing due date to October 15, 2020. Note, payments will still be due on July 15, 2020, even if you extended the filing due date to October 15, 2020.
- The IRS still has not provided a filing or payment extension for the payment or deposit of any other type of federal tax (including payroll taxes and excise taxes) or for the filing of any information return.
- If you have questions for the IRS regarding the postponement of the payment due date, refer to Notice 2020-18 going forward. The IRS will ignore you if you refer to Notice 2020-17.
- If you think you will get a refund upon filing your 2019 tax return, Notice 2020-18 is not that important to you and you should get your return filed on time to get your money back. Don’t let the Feds keep your money any longer than needed.
- Many states have started to follow suit by extending filing and payment due dates.
- As of March 24, 2020, the IRS has posted 24 FAQs on Notice 2020-18 and the filing and payment deadline postponements, which can be found here. Keep track of these as the IRS tends to add new questions and answers or edit prior ones without issuing a formal press release or announcement.
90-Day Postponement of the Payment Due Date
Following on the heels of President Trump’s March 13, 2020, emergency declaration under the Stafford Act in response to the Coronavirus (“COVID-19”) pandemic and Secretary Mnuchin’s press conference of March 17, 2020, the IRS issued Notice 2020-17 on March 18, 2020. The Notice postpones the payment due date for Federal income tax payments (including payment of tax on self-employment income) ordinarily due on April 15, 2020 for 90 days to July 15, 2020 without any interest or penalties. The applicable postponement amount is capped is $10 million for C corporations and $1 million for other taxpayers (individuals, trusts, and estates) regardless of filing status.
- Notice 2020-17 does NOT postpone the due date for the filing of income tax returns due on April 15, 2020.
- It only applies to income tax payments due on April 15, 2020 (including payment of tax on self-employment income) for the 2019 tax year and estimated tax payments due on April 15, 2020 for the 2020 tax year. The postponement does not apply to estimated tax payments due on June 15, 2020.
- The IRS has not provided a payment extension for the payment or deposit of any other type of federal tax (including payroll taxes and excise taxes) or for the filing of any tax return or information return.
- The failure to postpone the filing due date in connection with postponing the payment due date is likely going to create confusion among taxpayers that prepare their own returns and could lead to a significant uptick in late-filed returns.
- Payments are only postponed to July 15, 2020, so even if you extend your filing due date to October 15, 2020, you still need to make any needed payments by July 15, 2020.
- If you think you will be unable to make the needed payments by July 15, 2020 due to the impact of COVID-19 interest and penalties will start to accrue, but depending on your situation, relief from the penalties may be available via First Time Penalty Abatement or for reasonable cause and good faith.
- If you think you will get a refund upon filing your 2019 tax return, Notice 2020-17 is not that important to you and you should get your return filed on time to get your money back. Don’t let the Feds keep your money any longer than needed.
Based on President Trump’s press conference this morning, March 20, 2020, and a tweet by Treasury Secretary Steven Mnuchin, the IRS has now extended the filing due date for income tax returns normally due on April 15, 2020 to July 15, 2020 to match the 90-day postponement of the payment due date announced earlier this week.
While the IRS has yet to issue any official announcement or guidance, like a Notice, we expect that such guidance is forthcoming later today from the Procedure and Administration division of the Office of Chief Counsel for the IRS. We will provide details on any announcement or guidance from the IRS as they become available.
Enactment of the Families First Coronavirus Response Act – H.R. 6201
On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (H.R. 6201) shortly after the bill was passed by the Senate (at the urging of President Trump) by a vote of ninety to eight. H.R. 6201 is a multi-billion-dollar tax and spending package that is currently unpaid for, but intended to help families and business bare the impact of COVID-19.
From a tax perspective, H.R. 6201 includes two refundable credits designed to help employers with fewer than 500 employees (there are some exemptions, including businesses with fewer than 50 employees) offset the costs of the mandated paid sick leave and paid family and medical leave also contained in the legislation. Both credits are payroll tax credits. The payroll credit for required sick leave allows employers a credit against payroll tax imposed on the employer for each calendar quarter in an amount equal to 100% of the qualified sick leave wages paid by the employer with respect to that calendar quarter, subject to some limitations. The payroll credit for required family leave is essentially the same except the credit is for the payment of qualified family leave wages. The legislative history appears to indicate that employers with more than 500 employees cannot claim either credit.
The payroll credits will only apply to qualified sick and family leave wages paid starting on a day determined by Treasury (but within 15 days of the enactment of the legislation) and ending on December 31, 2020. For more details read the technical explanation released by the Joint Committee on Taxation.
- Many contractors and gig-economy workers will not be covered by H.R. 6201 as they will mostly likely not meet the definition of an “employee” under the Code and will be considered independent contractors. There are some similar credit provisions for self-employed individuals in the legislation, but the burden is much more significant and the benefit is smaller.
- The legislation puts some pressure on Treasury and the IRS to issue guidance or regulations quickly, particularly since the tax credits will only be applicable for payments made over the next nine months.
- Most small business will be exempt from the mandates of paying for sick leave and family leave, and thus not eligible to receive the credits either, which begs the question – will there be any specific small business protection measures enacted in the form of tax relief?
- While the Senate was passing H.R. 6201 and before President Trump signed the bill, Treasury was already floating the White House’s next set of plans, its “Stage Three Proposal,” to combat the impact of COVID-19 which is a proposed $1 trillion stimulus package that would include having the IRS send “economic impact payments” to individuals.
Notice 2020-15 – High Deductible Health Plan
On March 11, 2020, the IRS issued Notice 2020-15 in response to COVID-19 and in an attempt to remove barriers for testing and treatment of COVID-19. The Notice provides a health plan that otherwise satisfies the requirements to be a high deductible health plan (“HDHP”) will not fail to be an HDHP merely because the health plan provides health benefits associated with testing for and treatment of COVID-19 without a deductible or with a deductible below the minimum deductible for an HDHP.
- The Notice provides some flexibility to HDHPs to provide health benefits for testing and “treatment” of COVID-19 without the application of a deductible or cost sharing.
- Basically, the Notice deems “testing and treatment” of COVID-19 to count as preventative care.
- The IRS needs to clarify or define “treatment.” Does it include telehealth consultations, which generally require upfront payment of the cost of that service to be in compliance with the HAS rules? Is a negative COVID-19 test result covered or treated as preventative care?
IRS Webpage on COVID-19 Tax Relief
In light of COVID-19, the IRS has created a special webpage – irs.gov/coronavirus – containing all COVID-19 related tax guidance, relief, information, and resources, including links to the two Notices discussed earlier.
- Hopefully, this site will be updated quickly and regularly. If so, this will be a nice one-stop-shop for all IRS guidance and resources related to COVID-19 tax relief.
Tax Court Cancels March and April Trial Sessions
Through press releases of March 11 and March 13, 2020, the United States Tax Court cancelled the reminder of its March trial sessions and all of its April sessions due to COVID-19 concerns. All-in-all, the Tax Court has cancelled 12 sessions so far. The Tax Court also closed its doors to visitors but will continue to process mail and paper filings, like Petitions. Other Federal courts across the country have taken similar measures, particularly with civil matters.
- Kudos to the Tax Court for being cautious and proactive here.
- If you have a case in Tax Court that was not on one of these calendars and you are looking to settle your case, now is the time to reach-out to the Chief Counsel attorney as quite a few of them will have some unanticipated free time to handle other matters.
Our Insights are published as a service to clients and friends. They are intended to be informational and do not constitute legal advice regarding any specific situation.
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