** This blog was updated on 3/28/20 as a result of the IRS issuing Notice 2020-20 regarding federal gift tax and generation-skipping transfer (GST) tax filings **
Due to the economic interruptions caused by the COVID-19 pandemic, the IRS issued Notice 2020-18 to automatically postpone the April 15, 2020, federal income tax filing and payment deadline until July 15, 2020. The Notice raised may questions regarding the eligible filings. In an effort to clarify any confusion regarding how this postponement effects taxpayers, on March 24 the IRS issued FAQs outlining the intended relief. Below are a few of the key areas they addressed.
1. Who is Eligible for Automatic Postponement?
- Any person with a federal income tax return or payment due on April 15, 2020, is eligible for relief. “Person” includes any type of taxpayer, such as an individual, a trust, an estate, a corporation or any type of unincorporated business entity. The payment due refers to both 2019 federal income tax payments (including payments of tax on self-employment income) and 2020 estimated federal income tax payments (including payments of tax on self-employment income), regardless of the amount owed. The return or payment must be due on April 15, 2020. This relief does not apply to federal income tax returns and payments due on any other date. Businesses or other entities that have filing deadlines on May 15, June 15 or a date other than April 15 have not been granted relief under this Notice.
- This relief does not require the taxpayer to be sick or quarantined, or have any other impact from COVID-19 to qualify for relief.
- Fiscal year income tax filers whose filing deadline is on April 15, 2020, whether that is the original deadline or the deadline on extension, are automatically postponed to July 15, 2020.
OUR TAKE >> Although no action is required by taxpayers to qualify for this relief, taxpayers should still work with their tax providers to determine the best filing strategy based on their facts and circumstances.
2. Which Income Tax Filings are Automatically Postponed?
- The Notice postpones the filing and payment of federal income taxes reported on the following forms:
- Form 1040, 1040-SR, 1040-NR, 1040-NR-EZ, 1040-PR, 1040-SS
- Form 1041, 1041-N, 1041-QFT
- Form 1120, 1120-C, 1120-F, 1120-FSC, 1120-H, 1120-L, 1120-ND, 1120-PC, 1120-POL, 1120-REIT, 1120-RIC, 1120-SF
- Form 8960
- Form 8991
- With respect to Form 990-T, if that form is due to be filed on April 15, then it has been postponed to July 15 under the Notice. For taxpayers whose Form 990-T is due on May 15, that due date has not been postponed under the Notice.
- With respect to returns due on March 16, 2020, which include Form 1065, Form 1065-B, Form 1066, and Form 1120-S for calendar year taxpayers, the filing of those returns has not been postponed.
- This relief applies only to federal income tax payments. State filing and payment deadlines vary and are not always the same as the federal filing and payment deadline. Taxpayers should check with their state tax agencies to determine if the state filing and payment deadlines.
- The Notice does not provide relief to payroll and excise taxes or estate and gift taxes. The normal filing, payment and deposit deadlines continue to apply to payroll and excise taxes, and estate and gift taxes.
- For any taxpayer whose federal income tax return filing deadline has been postponed from April 15 to July 15, 2020, the deadline for Form 8991 and the BEAT payment has been postponed to July 15, 2020.
- Federal gift tax and generation-skipping transfer (GST) tax filings on Form 709 (pursuant to Notice 2020-20)
OUR TAKE >> Although the filing and payment deadline for the federal income tax returns has been extended, this relief does not apply to other information returns that may be due on the original April 15 deadline. Based on the current guidance, it is our understanding that foreign information returns such as Forms 5471, 8621, etc. — whose deadline is generally tied to the income tax return in which they are attached — should fall within the relief granted by Notice 2020-18 and still be filed with the taxpayer’s federal income tax return by July 15, 2020. However, it is less clear regarding forms such as the 3520 and 3520-A, which have their own statutory required April 15 deadline but are generally entitled to an automatic extension if the taxpayer receives an extension to file their income tax return.
We will continue to monitor for any further clarification regarding information return extensions.
3. How Does the Notice Impact Filing and Paying 2019 Federal Income Taxes and First Quarter 2020 Federal Estimated Income Taxes?
- Eligible taxpayers do not need to file any additional forms to qualify for this automatic federal tax filing and payment relief. However, if the taxpayer is an individual, they may request an automatic extension to file their federal income tax return if they cannot file by the July 15 deadline. For example, they could file to extend to October 15 under the normal filing rules.
- The taxpayer must request the automatic extension by July 15, 2020. If the taxpayer properly estimates their 2019 tax liability using the information available and files an extension form by July 15, 2020, their tax return will be due on October 15, 2020. To avoid interest and penalties when filing a tax return after July 15, 2020, a taxpayer must pay the estimated tax as due with their extension request.
- Businesses, including trusts, may also request an automatic extension to file their federal income tax return by the July 15 deadline to extend under the normal filing rules.
- Second quarter 2020 estimated income tax payments are still due on June 15, 2020. The Notice only granted relief to first quarter estimates due on April 15.
OUR TAKE >> The Notice did not postpone the original deadline for certain flow-through entities, such as partnerships and S Corporations. If a partnership (including a multi-member LLC) or S Corporation requested an extension until September 15, 2020, owners should consider also filing an extension for their income tax returns. Partners and shareholders should discuss the Schedule K-1 issue date with their tax advisors to determine if they will be able to file complete income tax returns on or before July 15, 2020, or if an extension until October 15, 2020 should be requested.
4. How Does the Notice Effect Contributions to Individual Retirement Accounts (IRAs), Workplace-based Retirement Plans, Health Savings Account (HSAs) and Archer Medical Savings Accounts (MSAs)?
- Contributions may be made to a taxpayer’s IRA, HSA and MSA for a particular year, at any time during the year or by the deadline for filing the taxpayer’s federal income tax return for that year. Because the deadline for filing federal income tax returns has been postponed to July 15, the deadline for making contributions to these accounts for 2019 is also extended to July 15, 2020.
- If a taxpayer owes the 10% additional tax on amounts includible in gross income from a distribution from an IRA or workplace-based retirement plan in 2019, the reporting and payment of the 10% additional tax is also extended to July 15, 2020.
- Excess elective deferrals to a workplace-based retirement plan in 2019 are not extended under the Notice. A taxpayer is still required to take those excess deferral (and income) out of the retirement plan no later than April 15 to exclude the distributions from income.
- For employers with a federal income tax return due date of April 15, the grace period for the employer to make contributions to its workplace-based retirement plan that are treated as made on account of 2019 is extended to July 15, 2020.
OUR TAKE >> Taxpayers should consult with their tax advisors to ensure they are taking advantage of the expanded contribution period.
5. Other Miscellaneous Items
- Returns being filed on April 15, 2020, to claim a refund for 2016 are not extended to July 15, 2020.
- The Notice does not change the estimated tax requirements or estimated tax penalty for 2019 if a taxpayer failed to make the required installments of estimated tax during the 2019 calendar year.
As we’ve said before, while the relief provided by this Notice is welcome for many, we believe it is in the best interest of our clients to continue to move deliberately towards completing tax returns as soon as possible. Considerations should be given for refunds, investor needs and other reporting that should not be delayed. Further, state and city guidance is incomplete, so close consideration must be given for other balances due or refund opportunities.
We anticipate the IRS will issue further guidance as the tax season continues. Cohen & Company will continue to monitor the tax implications of the COVID-19 pandemic and provide up to date information for our clients.
Contact Cynthia Pedersen at Cynthia.firstname.lastname@example.org or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.