IRS Releases Notice 2020-17, Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic

IRS Releases Notice 2020-17, Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic

The notice grants relief to Affected Taxpayers in the form of a deferral of income tax and self-employment tax payments, up to the Applicable Postponed Payment Amount, due on April 15, 2020 until July 15, 2020, without the imposition of penalty and interest.

Definitions

Affected Taxpayers – any person with a federal income tax payment due April 15, 2020; person includes an individual, trust, estate, partnership, association, company or corporation.

Applicable Postponed Payment Amount – for C corporations and for each consolidated group of C corporations, up to $10,000,000; for all other Affected Taxpayers, up to $1,000,000; for individuals, the amount is the same ($1,000,000) regardless of filing status.

Relief Granted

For Affected Taxpayers, the due date for making federal income tax payments, including self-employment tax payments, due April 15, 2020, in an aggregate amount up to the Applicable Postponed Payment Amount, is postponed to July 15, 2020. The relief provided in the Notice is available solely with respect to federal income tax payments due on April 15, 2020 with respect to an Affected Taxpayer’s 2019 taxable year, and federal estimated income tax payments due April 15, 2020, including self-employment tax for an Affected Taxpayer’s 2020 taxable year.

Payments due at April 15, 2020, up to the Applicable Postponed Payment Amount, will be disregarded in the calculation of penalties and interest for the period from April 15, 2020 to July 15, 2020, with penalties and interest applying only to such amounts unpaid beginning on July 16, 2020. Penalties and interest will accrue from April 15, 2020 on the amount of any federal income tax payments in excess of the Applicable Postponed Payment Amount.

Examples

Example 1) Individual Taxpayer (single taxpayer, but same result with married filing joint) has a balance due at April 15, 2020 of $400,000 on the 2019 Form 1040 and a balance due of $225,000 on the first quarter estimated tax payment. The aggregate amount of $665,000 due is below the Applicable Postponed Payment Amount limitation of $1,000,000 for this taxpayer. Therefore, the entire amount due can be postponed until July 15, 2020 without the imposition of penalties and interest. Penalties and interest would only apply to unpaid amounts at July 15, with accrual beginning on July 16.

Example 2) Individual Taxpayer (single taxpayer, but same result with married filing joint) has a balance due at April 15, 2020 of $900,000 on the 2019 Form 1040 and a balance of $600,000 due for the first quarter estimated tax payment. The Individual Taxpayer makes no payment at April 15, 2020. The aggregate amount of $1,500,000 due is above the Applicable Postponed Payment Amount limitation of $1,000,000 for this taxpayer. Therefore, Individual Taxpayer can only postpone $1,000,000 until July 15, 2020 without the imposition of penalties and interest. Penalties and interest would apply to the $500,000 amount in excess of the Applicable Postponed Payment Amount accrual beginning on April 16. Any unpaid amounts at July 15, above or below the Applicable Postponed Payment Amount, would be subject to the accrual of penalties and interest beginning on July 16.

Example 3) Individual Taxpayer (single taxpayer, but same result with married filing joint) has a balance due at April 15, 2020 of $900,000 on the 2019 Form 1040 and a balance of $600,000 due on the first quarter estimated tax payment. Individual Taxpayer pays $500,000 at April 15, 2020. The balance due at April 15, after the payment of $500,000, is equal to the Applicable Postponed Payment Amount limitation of $1,000,000 for this taxpayer. So, the payment of the $1,000,000 can be postponed until July 15, 2020 without the imposition of penalties and interest. Any unpaid amounts at July 15 would be subject to the accrual of penalties and interest beginning July 16.

Uncertainties after release of Notice

The text of the notice does not provide complete clarity as to whether a taxpayer has to file a return in order to qualify for the relief, or whether the filing of an extension with a reasonable estimate of the balance due qualifies a taxpayer for the relief. The only reference to a return is the sentence, “No extension is provided in this notice for the payment or deposit of any other type of federal tax, or for the filing of any tax return or information return.” The notice is, therefore, not an extension of time to file a return as had been requested by the AICPA and other tax professional groups. The notice also does not condition the relief on the timely filing of a return or extension. We will continue to seek clarification on these points.

Policy Considerations

Most tax professionals and taxpayers expected a filing deadline extension. The 90-day delay in payment of taxes likely confuses some individuals about the filing deadline and fails to provide relief to tax preparers. By not extending the filing deadline, the IRS has not addressed issues affecting tax preparers, who are also facing significant challenges to business continuity while trying to follow the Administration’s and local government guidelines or mandates suggesting or requiring social distancing.

Barry Melancon, CEO for the American Institute of Certified Public Accountants, expressed opposition to the Treasury’s announcement:

“The concern and confusion related to coronavirus is causing cities across the country to shut businesses down, and Treasury’s recent decisions do not reflect the real-world difficulties tax

practitioners and their clients are experiencing. Treasury must act immediately by extending the April 15th filing deadline and providing more clarity on the details of recent relief actions.”

What has been the Alabama Department of Revenue’s (ADOR) Response of Reaction to Notice 2020-17?

As of Wednesday, March 18, 2020 at 6:30 p.m., the ADOR had, in its Newsroom, an article titled “ADOR Responds to COVID-19 Outbreak.” This article dated March 17, 2020 includes the following statement:

It is expected that the IRS will announce extensions of deadlines for filing federal income tax returns. The Department plans to mirror these return filing extensions as appropriate and enter corresponding taxpayer relief orders. Please monitor the Department’s COVID-19 Updates page for additional information as it becomes available. [emphasis added]

ADOR was expecting an extension of time to file and not a deferral of payments as well. At this time, we are still awaiting additional guidance from the ADOR.

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