IRS Issues Guidance Regarding Deferred Tax Payments due to Coronavirus Pandemic

On March 18, the IRS issued Notice 2020-17 providing details on the deferred tax payments previously announced by Treasury Secretary Mnuchin in response to the Coronavirus pandemic.  Specifically, the due date for making Federal tax payments due April 15, 2020, in an aggregate amount up to $10 million for corporations and $1 million for individuals and all other “affected taxpayers” is postponed to July 15, 2020.  For individuals, the $1 million limit is the same for a single filer as a married couple filing a joint return – in either case, the limit will be $1 million.

Observation: the notice does not address married filing separate filings, so it is not clear whether the $1 million limit would be split.  It appears that trusts and estates would be considered eligible for the $1 million deferral.

The deferral relief applies solely to Federal income tax payments (including payments of self-employment tax).  It also includes Federal estimated tax payments due April 15, 2020, with respect to the 2020 year.

Observation: based on the provisions of the notice, this could result in the second quarter estimated tax payment falling due before that for the first quarter.

For corporations, the $10 million limit applies to either a consolidated group or for each C corporation that does not join in filing a consolidated return.

Observation: the wording in this provision suggests that a consolidated group of corporations could have multiple $10 million limits if they file separate returns.

The notice is clear that the deferral relief does not apply to the payment or deposit of any other type of Federal tax, nor does it extend the due date for the filing of any tax return or information return.  Therefore, most affected taxpayers will still have to either file a tax return by April 15 or file an extension.  Any interest, penalties or additions to tax with respect to the amount of Federal tax postponed will begin to accrue beginning July 16, 2020, effectively providing a 3-month grace period for such charges.  The deferral will also not apply to the due date for IRA or HSA contributions, which will still be April 15.

Finally, the Notice acknowledges that taxpayers subject to penalties or additions to tax despite the relief provided in the notice can still seek reasonable cause relief.

With regard to state income tax payments due, each state is different and will establish its own rules regarding relief for affected taxpayers.  A chart showing how many states have provided filing guidance can be found here

If you would like assistance in determining how the deferred payment relief would impact your tax return, please consult an Elliott Davis tax advisor.

For more helpful resources to navigate COVID-19, visit the Elliott Davis COVID-19 Resource Center