Dear WZ Client:
The IRS Chief Counsel Office issued Notice 2020-17 on March 18 titled ‘Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic’. This update provides details about the deferral of federal income tax payments.
All taxpayers are technically considered to have been impacted by the COVID-19 pandemic and defined as Affected Taxpayers are now eligible to defer federal income tax payments that are normally due on April 15, 2020. The modified due date is now July 15, 2020. Taxpayers now have until then to pay before penalties and interest start accruing. The deferral relates to income tax due up to the “Applicable Postponed Payment Amount” (APPA), defined as:
- $10 million for each consolidated group of C corporations or for each corporation which does not join in filing a consolidated return; and
- $1 million for other taxpayers. The Notice confirms that this latter amount applies to individuals irrespective of filing status – meaning that a single person filing a federal income tax return has the same $1 million Applicable Postponed Payment Amount as a married couple filing a joint return. This rule effectively creates a cash flow marriage penalty on joint filers.
The Notice also goes on to explain that any tax due in excess of the APPA is subject to penalties and interest if not paid by the original April 15 due date.
- If a single individual filer owes $2 million for 2019 federal income tax purposes, including self-employment tax, the payment of the first $1 million can be deferred until July 15, 2020.
- However, the additional $1 million would be subject to penalties and interest if it is not paid by April 15.
- In this theoretical situation, the taxpayer could request an abatement of penalties by the IRS on the additional $1 million due to “reasonable cause”. There is no way to know whether the IRS will grant or not grant the abatement. Regardless of this, the interest would generally not be abated.
The IRS also clarified that estimated tax payments due on April 15 are also covered under this deferred payment rule.
- However, this proposes that the second estimated tax payment normally due on June 15 is not covered unless new information comes to light.
- The Notice notes that an individual and certain trusts/estates can seek a penalty waiver for underestimation of tax from the Commissioner, because of casualty, disaster, or “other unusual circumstances”, where the imposition of the penalty would be against equity and good conscience.
- The right to request a penalty waiver for underestimation of tax does not apply to corporations.
The right to defer payment of tax applies only to income taxes relating to the 2019 tax return. It does not apply to other taxes such as payroll tax, gift tax, or excise tax.
The Notice also makes it clear that the deferred payment rule does not extend the filing deadlines of the income tax return. Impacted taxpayers can request extensions of time to file under the normal regime.
At this point there are still many unknowns as this is a very fluid situation. We are monitoring it closely and will keep you updated as the information changes.
If you have any questions or concerns please do not hesitate to reach out as we are ready to answer any of your questions.
Stay healthy and be well,