IN BRIEF

Impacts of Covid-19 on Federal Tax

Updated April 21, 2020

1040 US individual Income Tax Return

IRS extends filing and payment deadlines until July 15 – what should practitioners do now?

As part of the U.S. government’s coronavirus response, the IRS initially announced in Notice 2020-17 an extension of the April 15 tax payment deadline until July 15 for individuals and businesses owing certain amounts.

After further consideration, and to avoid confusion between filing dates and payment dates, the IRS announced in Notice 2020-18 (which supersedes Notice 2020-17) the extension of the April 15 tax filing and tax payment deadline by 90 days until July 15 for all taxpayers, without limitation on how much is owed. 2020 estimated payments due April 15 are also deferred until July 15. The filing and payment extensions are automatic, i.e., no extensions need to be filed to qualify for the extensions.

Other taxes, such as payroll and excise taxes, are not covered by this relief but may be the subject of future IRS guidance.

[Subscribers: Keep up with all of the coronavirus coverage available on our Coronavirus Tax Watch page.]

As a practitioner, what should you tell clients to do?

Part of the answer will be supplied by your clients. Some clients will tell you that they want to file and pay on April 15, file but not pay until July 15, or just wait until July 15 to file and pay. You will need to adjust your tax season work plans and staffing levels to respond to the re-distribution that is likely to occur. You will also need to adjust your firm’s revenue and cash flow expectations.

Part of the answer will also be determined by helping your clients assess their individual and/or business situation and cash flow needs in the coming months.

Advise clients who will receive refunds or who may receive a federal refund but owe state tax (or vice versa) to file now if the combined filings will completely satisfy their entire tax liability for 2019. This simply leverages monies already paid into the tax authorities and does not make any demands on your client’s current cash flow or savings.

For clients who will owe on July 15, the analysis becomes more complex. For individuals, you should work to assess their current financial situation and ability to pay. This should include an analysis of the client’s 2020 projected tax liability to date so that you will have a more complete picture and sense of how best to deploy what may be limited funds and other immediate financial needs.  (A sample client letter will help you explain options available to your client).

For businesses, a similar analysis should be conducted. For businesses with a payroll, if the client is in financial distress, it is probably better to keep current with all payroll tax liabilities to prevent the liabilities from pyramiding and because paying other creditors before the IRS exposes the client to personal liability for 100% of the tax under IRC §6672 as the “responsible person.”

Sample Client Letter

Bloomberg Tax & Accounting continues to publish sample client letters to explain the impacts of Covid-19 on individual and business taxpayers. Here’s a letter that outlines the available options for taxpayers who can’t pay their taxes.

How can companies get quick cash back from the IRS?

A corporation that overpays its estimated tax can obtain a quick refund of the excess estimated tax before it files its tax return. A corporation can obtain a “quick refund” only if the amount of the refund equals or exceeds 10% of the amount estimated by the corporation on its application as its income tax liability for the tax year and is at least $500.

The application is filed on IRS Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. The application must be filed after the end of the tax year and on or before the 15th day of the fourth month after the end of the tax year, or the date the tax return is filed, if earlier. Thus, for a calendar year taxpayer, the application should be filed by April 15.

The IRS generally must act on the application within 45 days. Any refund is first credited against any unpaid taxes owed by the corporation, and any remainder is refunded to the corporation.

Has COVID-19 had an effect on fiscal year taxpayers?

Yes. For a fiscal year taxpayer that has an April 15, 2020 filing deadline, the filing due date is extended to July 15, 2020.

Has there been any impact regarding Estate, Gift, and Trust issues as a result of COVID-19?

The IRS postponed to July 15, 2020 the due date for both filing a gift tax and GST tax return and for payments of gift and GST tax due April 15, 2020.

Have HSA, IRA and Roth Account contribution timelines been extended?

Yes, the deadlines have been extended to July 15th.

[See how Income Tax Planner Web allows you to confidently and securely tackle complex tax planning scenarios while working with the latest federal and state tax law.]


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