Income Tax Deadline: IRS Provides 90-Day Relief for Taxpayers Due to COVID-19

The day after US Secretary of the Treasury Steven Mnuchin’s announcement on March 17, the Internal Revenue Service issued helpful guidance (Notice 2020-17) on the coronavirus (COVID-19) crisis. Importantly, the IRS is deferring all federal income tax payments due April 15, 2020 for 90 days. The notice is welcome relief for many taxpayers, but does not address other looming deadlines and tax payments that certain taxpayers are facing, such as those required under current installment agreements.  

Below are the key components of the Notice 2020-17 tax relief:

• Eligible taxpayers have until July 15, 2020, to make federal income tax payments (including self-employment tax) relating to the 2019 tax year. The IRS capped the amount of deferred tax payments at $10 million for consolidated groups (or C corporations that do not join in filing a consolidated return) and $1 million for all other taxpayers, regardless of their filing status (i.e., single or married filing jointly).
• For taxpayers that make quarterly estimated tax payments, the July 15, 2020 deadline likewise applies to any estimated federal income tax payments (including self-employment tax) for the 2020 taxable year that are also due on April 15, 2020.
• Taxpayers that make payments by July 15, 2020, will not incur interest, penalties, or additions to tax for failure to pay federal income taxes on amounts that were due by April 15, 2020.
• The extension does not apply to the payment or deposit of any other type of federal tax, and it should be noted that while the 90-day extension applies to tax payments, it does not extend the deadline to file required tax or information returns. Consequently, taxpayers must still file their federal income tax returns or request an automatic six-month extension by the April 15, 2020 filing deadline.

Treasury’s Powers to Delay Filing & Payments

The notice was issued pursuant to 26 USC section 7508A, which generally enables the Treasury Secretary to postpone for up to one year the time periods within which taxpayers must take various actions under the internal revenue laws. The actions, which are set forth in 26 USC section 7508(a)(1), include the payment of federal income tax.

Under Notice 2020-17, taxpayers can defer federal income tax payments up to $10 million (in the case of a corporation) or $1 million (in the case of an individual) in the aggregate. This means a corporation that has a liability with respect to its 2019 calendar year and an estimated tax payment due for the first quarter of 2020 may only defer a total of $10 million of those collective liabilities. Any amounts due in excess of $10 million must be paid by the April 15 deadline. The notice does not address corporate taxpayers that operate on a fiscal year and are not impacted by the April 15 deadline.

Treasury did not use the full extent of its powers to extend various payment or filing deadlines. Under 26 USC section 7508(a)(1), Treasury could have extended the deadlines for the payment of estate, gift, employment, or excise tax; the filing of (1) income, estate, gift, employment, or excise tax returns, (2) petitions with the US Tax Court, (3) claims for credit or refund of any tax, or (3) refund lawsuits; or “[a]ny other act required or permitted under the internal revenue laws specified by” the Treasury Secretary.

Welcome Relief for Most Taxpayers, But Many Are Still Not Covered

While Notice 2020-17 is helpful relief for a large swath of taxpayers, significant other taxpayer needs remain. Other taxpayers impacted—or incapacitated—by COVID-19 may be subject to the foregoing deadlines and have difficulty meeting them. COVID-19 may impact the ability of taxpayers, free tax preparation sites, low-income tax clinics, and other tax professionals—including in-house and external tax professionals—to meet other important deadlines during this time.

Taxpayers who fail to meet certain filing or payment deadlines in the months ahead may have avenues of potential relief such as pursuing reasonable cause relief or so-called “first-time abatement” of certain penalties as described in Section 20.1.1.3.3.2.1 of the Internal Revenue Manual. However, for other deadlines such as the deadline for filing a claim for refund for periods where the refund statute is close to expiring, requesting a Collection Due Process Hearing, or filing a petition with the US Tax Court, the repercussions are severe, and the taxpayer may not have an avenue for relief. The IRS should consider affirmatively issuing guidance similar to Notice 2020-17 for other important deadlines like those above.

In addition to addressing timing for actions to be taken by taxpayers, 26 USC section 7508(a)(1) also permits the extension of time for actions required to be taken by the IRS (or the United States, more broadly) such as assessment of tax, collection of tax by levy or otherwise, and filing suit in respect of any tax liability. It has been reported that an internal alert was issued to IRS employees on March 17 in which the IRS notified its employees that it would stop certain enforcement actions, including levies and collection actions, until further notice. No public guidance has been issued regarding this suspension to date.

State-Level Taxpayer Relief

Several states have already issued similar taxpayer relief.

For example, California initially granted businesses the right to request up to a 60-day extension of time to file payroll tax reports and deposit payroll taxes. California then extended the due date for sales and use tax returns and returns for other taxes by 60 days. The California Franchise Tax Board also announced special tax relief extending the filing and payment deadlines for the following: (1) Partnership tax returns due on March 15—extended 90 days to June 15; (2) individual tax returns due on April 15—extended 60 days to June 15; and (3) quarterly estimated tax payments due on April 15—extended 60 days to June 15.

Additionally, states like Washington and Oregon, which impose gross receipt taxes on businesses, have also granted certain extensions to filers. It is possible that other states will now either conform or adopt guidance similar to Notice 2020-17.

Contacts

If you have any questions or would like more information on the issues discussed in this alert, please contact any of the following Morgan Lewis lawyers:

Washington, DC
Jennifer Breen
Sheri Dillon
Eric Albers-Fiedler

New York
Cosimo Zavaglia