After U.S. Treasury Secretary Steven Mnuchin’s announcement that the deadline for paying federal income taxes would be extended, the IRS released guidance on March 18 outlining the details. IRS Notice 2020-17 follows up on President Trump’s Emergency Declaration that, among other things, instructed Mnuchin to provide relief from tax deadlines for taxpayers adversely affected by the coronavirus (COVID-19) pandemic.
According to the notice, Mnuchin has determined that any person with a federal income tax payment due April 15, 2020, is affected by COVID-19 for purposes of the relief. The notice doesn’t extend the federal tax return filing deadline, only the deadline for making payments. Bear in mind, too, that states aren’t necessarily following suit regarding state income tax payments (although many states have announced their own COVID-19 tax relief).
Under the notice, the due date for making federal income tax payments up to applicable limits is postponed to July 15, 2020. The applicable limit for corporations is $10 million for each consolidated group or for each C corporation that does not join in filing a consolidated group. For all other taxpayers, the applicable limit is $1 million, regardless of filing status. In other words, the $1 million tax limit applies equally to a single individual and to married individuals filing a joint return.
The relief is limited to federal income tax payments due on April 15 for the 2019 tax year and federal estimated income tax payments for the 2020 tax year that are due on April 15. It includes tax payments on self-employed income.
Penalties and interest
The notice also provides that no interest, penalty or additions to tax for failure to pay will be calculated on the postponed taxes for the period from April 15, 2020 to July 15, 2020. They will, however, begin to accrue on April 15 for payments in excess of the applicable limit ($10 million or $1 million) that aren’t paid by April 15.
Taxpayers who find themselves subject to such penalties or additions can seek reasonable cause relief for a failure to pay tax. They also can seek a waiver to the penalty for a failure to pay estimated income tax (the latter relief generally is limited to individuals and certain trusts or estates; it’s not available for corporations or nonprofits).
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Federal measures to mitigate the economic effects of the COVID-19 pandemic continue to roll out. We can help you stay on top of these developments and chart the best course forward.