As the April 15 tax deadline fast approaches, the nation continues to struggle with the Coronavirus pandemic. Earlier this week, Treasury Secretary Steven Mnuchin promised relief for taxpayers, and on March 18th, the IRS formalized that relief by publishing Notice 2020-17. While the relief is not as widespread as many had hoped, it will allow certain taxpayers to extend the time to pay income taxes (though not the time to file tax returns) from April 15 until July 15, 2020. Even with the additional clarity provided by the IRS, the notice has caused no shortage of confusion for taxpayers. Below are some frequently asked questions about the changes:
Q: My 2019 corporate return is due on April 15, 2020. Is that still the case?
A: Yes, it is. Notice 2020-17 does NOT extend the original due date for your 2019 return. Of course, as is always the case, you may file a six-month extension that will allow you to file your return as late as October 15, 2020.
Q: What about my individual return? Is that still due on April 15?
A: Yes, it is as well. The original due date has not changed, but again, the standard six-month extension is available until October 15, 2020. In addition, any estate or trust return due on April 15 remains due on that date, though an extension is available until September 30, 2020.
Q: If the due dates for filing the returns that are due on April 15 have not changed, then where is the relief offered by the IRS?
A: While the due dates may not have changed, certain income tax payments that were originally due by corporations, individuals, trusts and estates by April 15 have now been pushed back until July 15, 2020. Those payments include:
- The final income tax balance due on calendar year 2019 corporate, individual (including self-employment tax), trust and estate tax returns, and
First quarter 2020 estimated income tax payments.
Q: So I still have to FILE my corporate and individual return by April 15, but the PAYMENTS OF TAX can be made as late as July? Are there any limits on how much payment I can push back to July 15, 2020?
A: That is correct, you still must file or extend your return by April 15, 2020, but payments of income tax that were due on April 15 may be made as late as July 15, 2020. And yes, there is a limit on the amount of income tax that you may delay paying until July. The maximum amount of corporate income tax payments (the combination of any final 2019 balance due and first quarter 2020 estimated income tax payment) that may be deferred until July 15, 2020 is $10 million. The limit applies to a separate corporation and to a consolidated group of corporations.
For individuals, trusts and estates, the maximum amount of income tax that may be pushed back until July 15, 2020 (when combining any final 2019 balance due and first quarter 2020 estimated income tax payment) is $1 million. This $1 million limit applies regardless of filing status. Thus, the limit is $1 million if you file single and $1 million if you file jointly with your spouse.
Q: Every year, I contribute to an IRA, and that payment is also due April 15. Am I permitted to delay that payment until July as well?
A: No. The relief is solely for federal income tax payments. It does not cover payroll taxes, retirement contributions, or other non-income tax payments due April 15.
Q: What if my amount that would otherwise have been due on April 15 is in excess of the limitations described above?
A: Any amount in excess of the limitation is due by April 15, 2020. The IRS will assess penalties and interest on any payment in excess of the maximum amount permitted to be deferred beginning on that date. For example, if an individual owes $400,000 in income tax related to her 2019 final liability and $800,000 for her 2020 first quarter 2020 estimated income tax payment and chooses to pay the entire $1.2 million on July 15, 2020, the IRS will assess penalties and interest on $200,000 ($1.2 million of total tax less the $1 million permitted to be paid in July) from April 15 until July 15, 2020. The remaining $1 million of tax will escape any interest and penalties.
Q: Just to be clear, if I file for an extension of my corporate, individual, trust or estate return before April 15, 2020, I am also permitted to defer making the payments that would otherwise be due on April 15th until July 15, 2020, correct?
A: Yes. Under the recently issued relief, if you properly extend your return, your final 2019 income tax liability due and your first quarter estimated income tax payment for 2020 will be due on July 15, 2020.
Q: What if I don’t extend my return, but simply wait to pay my 2019 income tax liability AND file my 2019 tax return until July 15, 2020?
A: As stated above, the IRS has NOT extended the April 15 due date for corporations, individuals, trusts and estates. Thus, if you do not file your return or an extension before April 15, the IRS will assess a late filing penalty equal to 5% of the amount due on the return for each month the return is not filed, up to a maximum amount of 25% of the tax due.
Q: What if I fail to make the payments that were required to be made on April 15 by the new due date of July 15, 2020?
A: Interest and penalties will begin to accrue on any unpaid balances as of July 16, 2020. You will, however, be eligible to seek relief from penalties and interest if you can show “reasonable cause” for failure to pay on time.
It is possible that additional relief may still be forthcoming. In addition, attention now turns to each state to see how they will address the relief published by the IRS. RubinBrown will continue to monitor the federal and state legislation, and provide updates as the information becomes available.
By: Tony Nitti, CPA, MST
Readers should not act upon information presented without individual professional consultation.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.