IRS Clarifies July 15 Tax Extension Details

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In mid-March, the Treasury Department and the Internal Revenue Service announced special tax filing and payment relief to individuals and businesses in response to the COVID-19 outbreak. The filing deadline for all individual, trust, and corporate tax returns due on April 15, 2020, was extended automatically to July 15, 2020. Taxpayers do not need to file any forms, file any letters or documents, or call the IRS to qualify. If a taxpayer still can't file at that time, an extension may be submitted to further extend the time to file (but not pay) the tax return.

 

This early relief was much appreciated but left taxpayers and practitioners with many unanswered questions. Some were clarified quickly - the IRS advised that the relief applied to tax payments, not just the filing of returns, and was available regardless of the expected balance due (early information capped it at $1 million). In addition, the relief delayed payment of estimated tax for tax year 2020, also due on April 15, 2020. Penalties and interest would not accrue on any remaining unpaid balance until July 16, 2020 (so payment by July 15 would avoid any interest and penalties).

 

A series of notices issued by the IRS late last week cleared up most of the remaining issues.

 

Relief expanded to additional returns, tax payments and other actions

 

The special extension was expanded to cover not just returns and payments due April 15, but any tax filing or payment falling on or after April 1, 2020, and before July 15, 2020. Individuals, trusts, estates, partnerships (including LLCs filing as partnerships), corporations, and other non-corporate tax filers qualify for the extra time. Anyone (including Americans who live and work abroad) can now wait until July 15 to file their 2019 federal income tax return and pay any tax due.

 

Although gift tax returns (Form 709) are not part of an income tax return, they are also due on April 15. The recent guidance confirmed that the automatic extension to July 15 applies to these gift tax returns. The July 15 date also applies to not-for-profit organizations that file Forms 990, 990-EZ, or 990-PF. For organizations that use a calendar year end, these returns would normally be due on May 15.

 

Certain informational returns, including forms related to foreign investors and investments, are not technically part of an income tax return but are required to be filed along with a timely filed return (including extensions). The penalties for not timely filing these informational returns can be harsh (up to $10,000 per form), so last week's IRS confirmation that all these forms are included in the July 15 relief was well received.

 

Taxpayers making annual installment payments under section 965(h) ("transition tax" on certain foreign-sourced income reported in 2017) may also defer any payment due between April 15 and July 15 until July 15.

 

Tax filing deadlines that are not return-related, such as tax court petitions, refund claims, or filing of a legal suit related to tax claim, are also delayed until July 15. This includes any unclaimed 2016 refunds, which would otherwise expire on April 15. The relief also gives the IRS until July 15 to perform time-sensitive actions regarding taxpayers currently under examination or appeal.

 

Estimates

 

The original announcement advised that first quarter estimated tax payments due April 15, 2020 did not have to be paid until July 15. This week's guidance clarified that ALL quarterly estimates previously due before July 15 will now be due July 15. That includes second quarter estimates for individuals, fiduciaries, and corporations otherwise due on June 15.

 

Net operating losses

 

The IRS provided guidance regarding how net operating losses (NOLs) arising in tax years 2018, 2019, and 2020 may now be carried back to claim refunds for the preceding five tax years under last month's CARES Act. An NOL arising in 2018 may now be carried back to claim a refund for tax years as early as 2013.

 

Filing (but not payment) extension beyond July 15 is available

 

Taxpayers who need additional time to file may file the usual extension form by July 15, 2020, to obtain an extension to file their return. Individuals file Form 4868 and businesses file Form 7004. The extension may not go beyond the original extended date. For example, Form 4868 for an individual will extend the time only to October 15, 2020. This applies only to the filing of the form - any federal income tax due must be paid with the extension on July 15, 2020.

 

State and local deadline relief

 

State and local jurisdictions vary in their compliance with these federal extensions. Most, including New York, New Jersey, and Connecticut, are following the IRS schedule and extending their returns and payments to July 15.

 

A prominent exception is the City of New York, where Unincorporated Business Tax extensions and payment for individuals and partnerships remain due and payable on April 15. UBT is a separate form filed only by certain businesses - city residents pay their regular city income as part of their NYS income tax return, which is due July 15. The City will be liberal in its discretion to provide penalty abatement for reasonable cause but does not believe it has the statutory authority to provide a blanket extension to all UBT taxpayers. Although penalty may be abated, interest on any balance due will be imposed.

 

The City has, however, extended the deadline for filing Real Property Income and Expense (RPIE) statements and storefront registry filings from June 1, 2020, to July 1, 2020. The City uses these statements to value income-producing properties.

 

During this crisis, your LMC professional is available if you have questions related to the latest updates on this topic.  All our prior Alerts are available on the Updates page of our website.

 

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