The Internal Revenue Service on March 24 published a first set of answers to frequently asked questions regarding the federal income tax return filing and payment relief provided in Notice 2020-18. This LawFlash discusses the clarifications provided by the FAQs, and where questions remain.
Notice 2020-18 was issued in response to the ongoing coronavirus (COVID-19) crisis (read our March 22 LawFlash on Notice 2020-18) and quickly followed by the FAQ guidance. While the IRS has historically taken the position that FAQs are not citable as legal authority—which the FAQs themselves reiterate—it seems clear the IRS wants and expects taxpayers to rely on this information in meeting their income tax obligations during these extraordinary times.
The IRS intends to update these FAQs periodically to communicate information to both taxpayers and tax professionals during the changing environment presented by COVID-19. The IRS and US Department of the Treasury will also continue to consider additional guidance.
Many Questions Answered, But Some Remain
The FAQs clarify a host of issues, addressing questions related to eligibility for filing and payment relief, filing and paying income taxes for 2019 and estimated payments for the first quarter of 2020, Individual Retirement Accounts (IRAs) and workplace-based retirement plans, and Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (MSAs).
The FAQs specifically provide for the following:
- For taxpayers that file Form 990-T (Exempt Organization Business Income Tax Return) due on April 15, 2020, the due date for this return has been extended automatically to July 15, 2020 under Notice 2020-18. For taxpayers whose Form 990-T is due on May 15, that due date has not been postponed under Notice 2020-18.
- The FAQs clarify that, for taxpayers that had returns due on March 16, 2020, which include Form 1065 (US Return of Partnership Income), Form 1065-B, (US Return for Electing Large Partnerships), Form 1066, (US Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return), and Form 1120-S (US Income Tax Return for an S Corporation), for calendar year taxpayers, the filing of those returns has not been postponed under Notice 2020-18. This may come as a surprise to some taxpayers because the authority to grant such extensions was triggered in advance of the deadline by the US president’s emergency declaration on March 13, 2020.
- For fiscal year taxpayers, the FAQs clarify that, if a federal income tax return for the fiscal year ending during 2019 is due on April 15, 2020 (whether that is the original due date or the due date on extension), the due date is postponed to July 15, 2020. It is likely that only a small subset of fiscal year taxpayers have a federal income tax return due on April 15, 2020. The remainder of fiscal year taxpayers with due dates other than April 15, 2020, will not have an extension.
- While Notice 2020-18 postponed the deadline for making first quarter 2020 estimated income tax payments due on April 15, 2020 to July 15, 2020, the FAQs note that second quarter 2020 estimated income tax payments remain due on June 15, 2020. Thus, as it stands, taxpayers making estimated income tax payments will have two payment obligations out of sequence and in quick succession—the first on June 15, 2020 (for second quarter 2020) and another on July 15, 2020 (for first quarter 2020).
- If taxpayers still cannot file their 2019 income tax returns by the new July 15, 2020 deadline, they may request a further extension by filing Form 4868 (individuals) or Form 7004 (businesses, including trusts). Importantly, such extensions apply only to filing tax returns (not payment of tax). The FAQs note that such extension requests are due by July 15, 2020 but would allow for an extension of six months from the original due date, i.e., an extension to October 15, 2020 based on an original due date of April 15, 2020.
- As a general rule, the IRS has three years from the date an income tax return is filed (or, if later, the return’s due date) within which to assess additional tax. The FAQs do not clarify the IRS’s position on how the extended deadline of July 15, 2020 impacts applicable statutes of limitation on assessment, if at all. For instance, it is unclear whether taxpayers that filed income tax returns and make payments prior to April 15, 2020, will have a statute of limitations that runs until the third anniversary of April 15, 2020 or July 15, 2020; or for taxpayers that file an income tax return and make payments between April 15, 2020 and July 15, 2020, whether the statute of limitations will run until three years after the filing date or July 15, 2020. This is important to understand for both assessment and refund purposes.
- For taxpayers that have already filed an income tax return for 2019 and that have scheduled any payment to be made automatically (via IRS Direct Pay, Electronic Federal Tax Payment System, electronic funds withdrawal, or credit card), the FAQs provide guidance to taxpayers that wish to modify or revoke the payment and reschedule it for July 15, 2020. Absent taxpayer action, the payment will be made on the date scheduled.
- The FAQs do not elaborate on what constitutes an “information return” for purposes of Notice 2020-18. As provided in Notice 2020-18, “[n]o extension” for “any Federal information return.” Information returns include, among others, Form 1098, Form 1099, and health insurance reporting. But there are other forms and statements that are generally attached to and filed with taxpayers’ annual federal income tax returns and might be considered “information returns.” A few examples include Form 8938 (Statement of Specified Foreign Financial Assets), Form 5471 (Information Return of US Persons With Respect to Certain Foreign Corporations), and Form 5472 (Information Return of a 25% Foreign-Owned US Corporation or a Foreign Corporation Engaged in a US Trade or Business). The FAQs do not elaborate on whether Notice 2020-18’s reference to “information returns” is intended to include these types of forms, but presumably since they are attached to the income tax return when filed they would also be subject to the extended deadline of July 15, 2020.
- The FAQs reiterate that Notice 2020-18 applies only to federal income tax returns and payments due on April 15, 2020. To this end, the relief does not apply to payroll or excise taxes, and thus normal filing, payment, and deposit due dates remain applicable. The same is true for estate and gift tax returns and payments.
- For the many taxpayers that have entered into collection alternative plans with the IRS (e.g., installment payment agreements), Notice 2020-18 and the corresponding FAQs are silent as to relief in the form of deferring or postponing any payments coming due between the date Notice 2020-18 was issued (March 20, 2020) and July 15, 2020. To the fullest extent possible, taxpayers should continue to adhere to the payment plans unless and until the IRS provides additional guidance.
More Guidance to Come
As the FAQs acknowledge, it is likely that the IRS and Treasury Department will continue to issue additional guidance in the coming weeks—both in reaction to additional comments from taxpayers and practitioners and otherwise. It is therefore critical that taxpayers consider what important questions they might need answered to facilitate compliance and the best manner in which to raise them.
The FAQs were released at the same time the IRS announced that, while it would be “curtailing some operations” to address the COVID-19 crisis, it would continue with “mission-critical functions to support the nation,” which include accepting tax returns and sending refunds. Like other organizations, the IRS has been affected by COVID-19 closures and has been forced to reduce operations during this time. The IRS is assessing its operations on a daily basis and continues to work to resolve taxpayers’ needs by phone, online, and through correspondence.
Contacts
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Washington DC
Jennifer Breen
Sheri A. Dillon
Eric Albers-Fielder
Silicon Valley
Barton W.S. Basset