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March 20, 2020

Tax Planning in the Wake of COVID-19

PART THREE: IRS EXTENDS TAX DEADLINE AS "PHASE THREE" NEGOTIATIONS CONTINUE

In a tweet this morning, Treasury Secretary Steve Mnuchin announced that the IRS will be extending the tax filing deadline for all individuals and businesses for 90 days, from April 15th to July 15th, 2020.

MNTweet

Later in the day, the IRS issued Notice 2020-18 (which supersedes Notice 2020-17) and automatically extends the due date for filing tax returns and making tax payments from April 15 to July 15. No federal extensions need to be filed by April 15, 2020. The Notice does not provide for the deferment of Q2 payments for 2020, however, this should (hopefully) be addressed shortly by Congress (see further below).

Notice 2020-18 removes the cap on the amount of tax payments that can be postponed. The earlier notice set a $1 million cap on individual income tax payments that could be postponed and a $10 million cap on tax payments for corporate taxpayers.

The news follows a previous update issued by Secretary Mnuchin and the IRS earlier this week that extended the deadline for tax payments 90 days to July 15, 2020. That move came under heavy fire from all sides as many were confused by the change (with many misinterpreting it as a deadline change).

The news comes as a big relief for anyone hit hard by the current COVID-19 pandemic, which, at this point, is pretty much everyone. States will be responding to these changes if they have not already expressly stated that they will conform to the IRS’ extended filing and payment due dates.

Tax professionals were among the loudest critics, stating that tremendous obstacles remain for the proper filing of taxes due to quarantine measures, including business shut-downs and restrictions on person-to-person interaction. In an official statement issued on Wednesday, Barry Melancon, CEO of the American Institute of Certified Public Accountants (AICPA), had this to say:

Nearly 60% of all taxpayers turn to a tax practitioner to prepare and file their tax returns, and individual and business tax filing deadlines are fast approaching. Even the relatively simple process of filing an extension form requires calculations based on data and information from the taxpayer. Given the current environment, this extension process is impossible for many taxpayers.”

The announcement from Secretary Mnuchin arrives ahead of the proposed “Phase Three” economic stabilization package that is expected to include provisions and other measures meant to counter the negative economic impacts of the COVID-19 pandemic.

On March 19th, GOP Senate Majority leader Mitch McConnell delivered an initial draft of the proposed “Phase Three” bill, which includes the following notable provisions for individuals and businesses (as applicable):

  • Postponement of estimated tax payments due from the date of enactment until October 15, 2020.
  • Delay of estimated tax payments for corporations due after the date of enactment until October 15, 2020.
  • Delay of payment of employer payroll taxes (deferred employer-share of payroll taxes to be paid over following two years).
  • Five year Net Operating Losses (NOL) carryback for 2018, 2019 or 2020 losses, temporary removal of 80% NOL limitation, and modification of pass-thru loss limitation.
  • Acceleration of corporate AMT credit refunds.
  • Changes to Section 163(j), which will increase the 30% interest deduction limitation to 50% for 2019 and 2020.
  • Technical corrections to the 2017 tax reform act regarding qualified improvement property (QIP), Section 965 overpayment refunds, and downward attribution rules.

Leaders in the Senate are currently negotiating the “Phase Three” bill and legislation is expected to be revised, voted on, and approved by President Trump within the next few days. When that legislation is finalized we will provide a recap and analysis of all provisions.

Lawmakers are also developing a “Phase Four” package, responding to a call for an additional $46 billion in emergency supplemental funding. No draft has been shared but these stimulus packages have been fast-tracked by bipartisan support and passage of that legislation could arrive as early as next week.

In the meantime, we recommend that anyone who can, should, file their taxes as soon as possible. Especially if they are due for a tax refund. The IRS has stated they are processing returns and making tax rebate payments. Receiving this money will provide a measure of liquidity for anyone currently experiencing a cash crunch due to the COVID-19 pandemic.

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