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The Internal Revenue Service (the IRS) issued official guidance on March 18, 2020, that some income tax payments can be delayed for 90 days until July 15, 2020, with some limitations, due to the impacts of the COVID-19 pandemic. However, taxpayers still need to file either their income tax return or extension request with the IRS for the 2019 tax year by April 15, 2020.
The guidance clarifies Treasury Secretary Steve Mnuchin’s earlier announcement on March 17, 2020, that businesses and individuals would be able to delay some tax payments, which led to confusion about the April 15 tax return filing date.
Payment Deferral
The relief is available solely for federal income tax payments, including payments of tax on self-employment income, due on April 15, 2020, related to the taxpayer’s 2019 tax year and 2020 estimated tax payments on April 15, 2020. There is no extension of payment or deposit for any other type of federal tax.
Individuals, Trusts, and Estates
Individuals, trusts, and estates can delay payments of up to $1 million in income taxes, regardless of filing status, until July 15, 2020. Note the $1 million amount includes, in the aggregate, amounts related to the 2019 tax year and estimated tax payments for the first quarter of 2020.
Corporations
Corporations are able to defer up to $10 million in income tax payments for each consolidated group—as defined in Reg. §1.1502-1—or for each C corporation that doesn’t join in filing a consolidated return. Similarly, the $10 million amount includes, in the aggregate, amounts related to the 2019 tax year and estimated tax payments for the first quarter of 2020.
Interest and Penalties Waived
The period from April 15, 2020, to July 15, 2020, will be disregarded for purposes of calculating interest, penalties, or addition to tax for failure to pay federal income taxes postponed by the notice. Interest, penalties, and additions to tax with respect to payments deferred will begin to accrue on July 16, 2020.
However, for amounts not paid by April 15, 2020, that exceed the allowed deferral amounts, interest, penalties, and additions to tax will accrue on the excess amount that is due, but not paid, by April 15, 2020.
Taxpayers subject to penalties despite this deferral may seek reasonable cause relief.
Intended Effect
The payment deferral is part of the Trump administration’s effort to curb economic effects of the COVID-19 pandemic.
Secretary Mnuchin claims the delay will free up $300 billion of liquidity in to the economy, and give individuals and businesses more time to address short-term cash-flow issues.
Request for Filing Extension
Taxpayers who need additional time to complete their returns can still request a six-month extension from the IRS.
Approximately 15 million people requested an extension in 2018 according to the IRS, and the number is expected to rise this year. Tax consultations and compiling documentation have become more difficult in the wake of the COVID-19 pandemic and social distancing.
We’re Here to Help
If you need assistance filing your returns, requesting an extension, or have any additional questions regarding the payment deferral, please contact your Moss Adams professional.