IRS Significantly Expands COVID-19 Tax Deferral Relief

The Internal Revenue Service (IRS) announced limited relief for certain income tax payment deadlines in Notice 2020-17, dated March 18, 2020, in response to the Coronavirus (COVID-19) pandemic. On March 20, the IRS restated and expanded this relief in Notice 2020-18. The new Notice grants all taxpayers an extension of time until July 15, 2020, to make income tax payments and filings that would otherwise have been due on April 15, 2020, for the taxpayer’s 2019 taxable year as well as all first quarter estimated income tax payments for 2020.

Here are the specifics:

• All federal income tax payments and federal income tax returns that were due April 15, 2020, in respect of 2019 and all first quarter estimated income taxes that were due on April 15, 2020, are now due July 15, 2020. This extension applies to federal income tax payments and income tax returns of all taxpayers, including individuals, trusts, estates, partnerships and corporations.
• The payment deferral limits from Notice 2020-17 ($1 million for individuals and $10 million for corporations) have been removed. There is now no limitation on the amount of payment that may be postponed.
• This relief only applies to federal income tax payments (including payment of tax on self-employment income) and federal income tax returns due on April 15, 2020, with respect to the taxpayer’s 2019 taxable year, and any estimated federal income tax payments due on April 15, 2020, for the taxpayer’s 2020 taxable year. It does not apply to the second quarter estimated income tax payments that will be due on June 15, 2020.
• For purposes of calculating any interest, penalties or addition to tax for failure to file the federal income tax returns or pay the federal income taxes postponed by Notice 2020-18, the period from April 15, 2020 to July 15, 2020, will be disregarded.
• Notice 2020-18 only extends the deadlines for federal income taxes. No extension is provided for the payment or deposit of any other type of federal tax, or for the filing of any federal information return. For example, without further guidance, the April 15 deadline is not extended for the following:
• Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return. Those seeking to extend the deadline to file a federal gift tax return for 2019 must complete and mail IRS Form 8892 (Application for Automatic Extension of Time to File Form 709 and/or Payment of Gift/Generation-Skipping Transfer Tax) by April 15, 2020, or IRS Form 4868 (Application for Automatic Extension of Time to File US Individual Income Tax Return) by April 15, 2020. Form 4868 automatically extends the time to file a gift tax return as well as an income tax return until October 15, 2020.
• Form 3520: Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers required to file Form 3520 (or a substitute Form 3520-A required if the trustee of the taxpayer’s foreign grantor trust failed to file Form 3520-A by March 15, 2020) may seek an extension by filing IRS Form 4868 to extend their federal income tax return deadline to October 15, 2020, which will automatically extend the due date for IRS Form 3520 (and the substitute Form 3520-A).
• Form 4868. Taxpayers who want to extend the time for filing their federal income tax returns until October 15, 2020, are not relieved from filing Form 4868. This form must be filed by April 15, 2020, the regular due date of the return. The IRS likely intended to extend the time for filing Form 4868 until July 15, but it is not clear that the Notice accomplishes this.
• Report of Foreign Bank and Financial Accounts (FBAR). FBARs are due April 15, 2020, but a taxpayer who fails to timely file will automatically receive an extension to October 15, 2020.

At this time, it is unclear whether Notice 2020-18 extends installment payments due April 15, 2020, for tax liability under section 965(h). The section 965 installment obligation relates to an income tax liability assessed in a prior year, and the IRS may not view it as relating to a taxpayer’s 2019 taxable year. We are seeking more guidance on this question and will provide any updates in the future.

Notice 2020-18 only extends federal, not state or local, income tax payment and filing deadlines. Individuals and businesses may need information from their federal returns in order to complete their state filings. Some states, such as California, previously announced the delay of all tax filing and tax payments until July 15, 2020. Other states have announced that they are monitoring the situation but are not yet extending filing or payment deadlines. Some states may extend filing or payment deadlines for taxpayers without conforming to the federal extension—possibly treating individuals and businesses differently. Taxpayers should check with their state department of revenue or other state government authority to determine their filing and payment deadline. McDermott is tracking the latest state and local tax developments in response to COVID-19 in this chart.

For more information about the tax impact of the COVID-19 emergency declaration, see our recent insights.