On March 21, 2020, the Treasury Department and the Internal Revenue Service issued Notice 2020-18, which announced that the federal income tax filing and payment due date is automatically extended from April 15, 2020, to July 15, 2020. The change came just two days after the federal income tax payment deadline was extended to July 15, 2020.
Below we answer a few of the more pressing questions we’ve received from clients who are concerned about protecting revenue streams and avoiding liquidity issues.
What does Notice 2020-18 provide for?
For any person with a federal income tax payment or a federal income tax return due on April 15, 2020, the due date for both filing federal income tax returns and making federal income tax payments is postponed to July 15, 2020.
Does the postponement apply to businesses?
Yes – the term “person” includes individuals, trusts, estates, partnerships, associations, companies or corporations, as provided in 26 U.S.C. § 7701(a)(1).
Does the postponement apply to estimated tax payments for the 2020 taxable year?
Yes, to an extent – the notice applies to federal income tax payments (including payments of tax on self-employment income) for the 2019 taxable year, as well as federal estimated income tax payments (including payments of tax on self-employment income) due on April 15, 2020. However, the notice does not discuss federal estimated income tax payments due on June 15, 2020. Separate guidance from the IRS indicates that estimated income tax payments due on June 15, 2020, are not postponed.
Will payments made on July 15, 2020 incur interest or be subject to penalties?
No – the period beginning on April 15, 2020, and ending on July 15, 2020, will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to file a federal income tax return or to pay federal income tax. Any interest, penalties, and additions to tax with respect to the postponed federal income tax filings and payments will begin to accrue on July 16, 2020.
Do I need to apply for the postponement?
No – the postponement is automatic. Thus, taxpayers do not have to file Forms 4868 or 7004 to obtain an extension to July 15, 2020.
Is there a limit to the amount of income tax payments that may be postponed?
No – there is no limitation on the amount of the payment that may be postponed to July 15, 2020. A prior notice issued by the IRS set a limitation of $10 million for corporations and $1 million for all other taxpayers.
Can I file my tax return and make a tax payment before the July 15, 2020 deadline?
Yes – even with the postponement, the IRS is urging taxpayers to file as soon as possible and file electronically. Although the IRS is curtailing some operations during this period, the IRS is continuing with mission-critical operations, including accepting tax returns and sending refunds.
What if I need more time beyond the July 15, 2020 deadline?
Taxpayers who require additional time may file Forms 4868 or 7004 by July 15, 2020. To avoid interest and penalties when filing a tax return after July 15, 2020, taxpayers should pay the tax they estimate as due with the extension request.
What other deadlines associated with the filing deadline are affected?
The IRS has issued separate guidance indicating that the deadline for contributions to IRAs, HSAs, and Archer MSAs for the 2019 taxable year have been extended to July 15, 2020.
Does the CARES Act provide a further extension of the deadline?
No – the March 21 guidance provided by the IRS in Notice 2020-18 remains in effect. On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which includes sweeping changes to the tax laws that affect large and small businesses. But the Act did not further postpone the filing and payment deadline for 2020 taxes.
Prior drafts of the CARES Act permitted individuals and corporations to postpone all estimated tax payments for the 2020 tax year until October 15, 2020. Taxpayers should be aware that this modified deadline for all estimated tax payments did not make it into the final version of the CARES Act.
Does the postponement apply to California income tax returns and payments?
The California Franchise Tax Board has issued a similar notice. The due date for both filing California income tax returns and making California income tax payments for calendar year filers is postponed to July 15, 2020. The due date is similarly postponed to July 15, 2020, for fiscal year filers with a filing or payment due date that falls between March 15, 2020 and July 15, 2020. The July 15, 2020 deadline also applies to California estimated income tax payments due on April 15, 2020 for personal returns, and C Corporations, S Corporations, and exempt organizations if the estimated tax payment is due on or between March 15, 2020 and April 15, 2020.
Payne & Fears LLP does not provide tax or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax or accounting advice. You should consult your own tax and accounting advisors before engaging in any transaction.
Disclaimer: Laws, regulations, and guidance on matters related to COVID-19 change rapidly. Please contact your Payne & Fears attorney for current guidance.