IRS Issues Guidance on Extension of April 15 Tax Payment Deadline to Minimize Financial Distress

On Wednesday, the Internal Revenue Service issued Notice 2020-17, providing relief to taxpayers amidst the economic fallout of the COVID-19 virus. Beyond taking a toll on public health, the global pandemic has disrupted business supply chains, debilitated US and global stock markets, and suppressed economic growth as fears of a recession surface. In an effort to protect the financial health of the United States economy, IRS Notice 2020-17 officially postponed the US federal income tax payment deadline for most individual taxpayers and many businesses for amounts otherwise due on April 15, 2020. The notice followed Treasury Secretary Steven Mnuchin’s March 17 announcement of the Treasury Department’s steps to boost liquidity in the US economy.

At a press conference Tuesday, Secretary Mnuchin presented a stimulus plan that included a 90-day delay for payment of tax due, free of interest and penalties. The move sought to pump liquidity into the economy by delaying an estimated $300 billion in payments to the IRS. The extra time to pay would lessen cash-flow issues experienced by businesses and individuals, explained Secretary Mnuchin, while travel bans, social-distancing, curfews, and lockdowns become the norm. The notice issued Wednesday provided guidance as to whom this extension applies and how the extension will be implemented.

Pursuant to Notice 2020-17, persons with a US federal income tax payment due April 15, 2020 are classified as “Affected Taxpayers” for purposes of the relief. For an Affected Taxpayer, the due date for making US federal income tax payments (including estimated quarterly tax payments for self-employed individuals) due April 15, 2020 is postponed to July 15, 2020. Notice 2020-17 did not change the April 15 deadline to file tax returns. Individuals and businesses are still required to file tax returns by April 15, unless they submit to the IRS a proper form for an automatic six-month extension. There is no extension for the payment or deposit of any other type of US federal tax.

The amount of tax that may be deferred is limited to $1 million for individuals, regardless of whether they are married or other filing status. For corporations, the amount of tax that may be deferred is capped at $10 million for each consolidated group or for each “C” corporation that does not join in filing a consolidated return. For all other taxpayers, the cap is $1 million. Unfortunately, the relief does not extend to a corporation that does not use a calendar year and may have an estimated or final tax payment date coming up soon that is not April 15.

Notice 2020-17 authorized deferral of federal estimated income tax payments due on April 15, 2020, for an Affected Taxpayer’s 2020 taxable year, with the cap applying in the aggregate to the following types of tax payments due on April 15, 2020: estimated income tax and self-employment tax payments due in respect of tax year 2020 and income tax and self-employment tax payments in respect of tax year 2019.

Taxpayers do not need to take any additional steps to benefit from the extension; when they file by April 15, they will not be charged interest and penalties typically associated with late payment of taxes shown on a return. 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 pay the US federal income taxes postponed by the notice. Interest and penalties will accrue from the original April 15th due date for any unpaid tax due above the $1 million and $10 million caps for individuals and corporations, respectively.

Notice 2020-17 also makes clear that, under Section 7508(a) of the Internal Revenue Code, the Treasury Secretary may postpone deadlines for taxpayers determined by the Treasury Secretary to be affected by a federally declared disaster. Historically, the IRS has extended filing and or payment deadlines for certain taxpayers residing in regions suffering from the wake of natural disasters such as hurricanes Harvey and Irma and the 2018 California wildfires.

Some tax preparers have raised concerns that social distancing measures being implemented to limit the spread of COVID-19 could make filing an extension more difficult for persons who typically deal with their tax preparers in person. In addition, the extension request form used by individuals, Form 4868, requires taxpayers to estimate their tax liability, to enter that amount on the form, and to file the extension by April 15.

Some state tax departments have also begun to take steps to ease financial distress inflicted by COVID-19. For example, one week before the IRS issued its guidance, Maryland’s Comptroller, Peter Franchot, announced that his office would extend business-related tax filing and tax payment deadlines to June 1 to assist businesses suffering from financial hardship caused by COVID-19. Maryland’s extension applies only to businesses filing returns for sales and use tax, withholding tax, and admissions & amusement tax (as well as for alcohol, tobacco, and or fuel excise taxes, and tire recycling fee and bay restoration fee returns) in March, April, and May 2020. As with the federal payment date extension, in Maryland, business taxpayers who pay by the extended due date will receive a waiver of interest and penalties. In addition, following the announcement by Secretary Mnuchin, Maryland leaders announced a similar 90-day delay in payment deadlines for Maryland individual and business income tax payments otherwise due on April 15, 2020.

California has instituted a similar delay to provide Californians with relief during the pandemic. California’s State Controller, Betty Yee, extended the period to file state tax returns by two months. In addition, California’s Franchise Tax Board will waive interest and late penalties that would otherwise apply.

In contrast to the IRS extension of the payment deadline, the Maryland and California extensions apply both to filing and payment deadlines. Given the relief granted by the Treasury Department Tuesday and the additional guidance from the IRS on Wednesday, we anticipate that other states will follow suit and extend state tax filing and/or payment deadlines.

Read our updated alert “Update: Treasury Department Extends Tax Filing Deadline to July 15.”

Read our updated alert “IRS Bolsters Taxpayer Relief by Extending 300 Tax Filing, Payment and Administrative Deadlines.”