TUESDAY, MARCH 24, 2020
FEDERAL IRS FILING & PAYMENT EXTENSION
On Wednesday, March 18, 2020, the IRS released Notice 2020-17 which provides additional clarification on remarks made the previous day by Treasury Secretary Steve Mnuchin with regard to the due date of payments originally due April 15, 2020. The Notice asserts that the President's issuance of an emergency declaration under the Stafford Act instructed the Secretary of the Treasury to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency, pursuant to IRC Sec. 7508A(a). The Notice states that ANY taxpayer with a Federal income tax payment due April 15, 2020, IS affected by the COVID-19 emergency for purposes of relief under the Notice (an "Affected Taxpayer").
Overview of the Notice
The following provides the key elements of the tax relief for taxpayers with an April 15, 2020, Federal income tax filing deadline.The Notice does NOT postpone the filing date of April 15, 2020.The due date for Federal income tax payments UP TO the Applicable Postponed Payment Amount originally due April 15, 2020, is postponed to July 15, 2020.The Applicable Postponed Payment Amount is:$10 million for each consolidated group OR for each C corporation that does not join in filing a consolidated return; and$1 million for all other Affected Taxpayers regardless of filing status (thus the $1M threshold is the SAME for a single individual or married individuals filing a joint return). The IRS website clarifies that this would apply to all entities other than C corporations, such as trusts and estates. The relief applies solely with respect to:Federal income tax payments (including self-employment income tax payments) due on April 15, 2020,
in respect of an Affected Taxpayer's 2019 taxable year; ANDFederal estimated income tax payments (including self-employment income tax payments) due on April 15, 2020, in respect of an Affected Taxpayer's 2020 taxable year. No extension is provided for the payment or deposit of any other type of Federal tax.The period of April 15, 2020, through July 15, 2020, will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to pay the Federal income taxes postponed by the Notice. Such interest and penalties will begin to accrue on July 16, 2020.Additionally, interest, penalties, and additions to tax WILL continue to accrue during the April 15, 2020, through July 15, 2020 period for Federal income tax payments due IN EXCESS of the Applicable Postponed Payment Amount ($10M/$1M thresholds noted above).Affected Taxpayers subject to penalties or additions to tax despite the Notice's relief may seek reasonable
cause relief under IRC Section 6651 for a failure to pay tax or seek a waiver to a penalty under IRC Section 6654 for a failure by an individual or certain trusts and estates to pay estimated income tax. However, the Notice excludes similar relief with respect to estimated tax payments for corporate taxpayers or tax-exempt organizations under IRC Section 6655.
As a result of this guidance, taxpayers with a filing due date of April 15, 2020, SHOULD file their income tax returns or file extensions by April 15, 2020.
However, such taxpayers have a 90-day deferral up to $10M (C corporations) or $1M (individuals and non C corporation entities) for amounts originally due on April 15, 2020.
If a taxpayer's balance due on April 15, 2020, EXCEEDS the defined threshold, penalties and interest may continue to accrue on such excess during the April 15, 2020, through July 15, 2020 period. For example, if an individual taxpayer has a $1.5M payment due on April 15, 2020, the deferral of interest and penalties would ONLY apply to $1M, and thus such taxpayer would still incur interest and penalties on the $500,000 excess during such period if not paid on April 15, 2020.
Another important facet of the defined interest and penalty deferral period of April 15, 2020, through July 15, 2020, is that any underpayment penalties that result from the failure to make estimated payments for the 2019 tax year on dates prior to April 15, 2020, appear to still apply. For example, if a taxpayer failed to make an estimated tax payment for a prior quarter, this Notice does NOT appear to provide relief for any underpayment penalties that result from such prior underpayment.
Taxpayers whose 2019 Federal income tax balance due on April 15, 2020, is less than the Applicable Postponed Payment Amount will have the ability to also defer all or a portion of 2020 estimated income tax payments originally due April 15, 2020 (up to the Applicable Postponed Payment Amount).
STATES FILING & PAYMENT EXTENSIONS
Several states are set to align extension deadlines with the IRS deadlines. Others, such as Illinois, have not yet released statements. Thus far, only California and Maryland, have provided state-specific guidance.