As more and more businesses shut down or scale back due to the Coronavirus pandemic, Federal, State and local governments are quickly realizing that these businesses and their employees are facing devastating financial consequences.
Whether a restaurant was forced to shut down or a commercial contract can no longer be fulfilled (Click here for more information on Force Majeure clauses), both businesses and individuals are going to have to find ways to weather the storm until life and the economy normalize.
In order to help mitigate these burgeoning financial consequences, Federal and State tax authorities have implemented certain measures that extend the date to file certain tax returns and/or delay the obligation to make tax payments. While these special tax relief measures may help individuals and businesses throughout the state – especially those with tax liabilities – it may not be enough to help them stay fiscally independent during this Coronavirus pandemic.
Therefore, in addition to the special tax relief below, businesses with shrinking revenues may also want to look at the Disaster Loan Assistance program, which is another way the government is trying to help during these uncertain times. If you are interested, please read about the Disaster Loan Assistance program here.
Federal Tax Payment Extension
In a press conference on Tuesday, March 17, 2020, Treasury Secretary Steven Mnuchin announced that individuals and corporations may delay their tax payments due to the Coronavirus pandemic. Following this announcement, the IRS issued Notice 2020-17 Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic, which we summarize below.
Qualifying Individuals and Entities
Notice 2020-17 states that any person (or entity) with a federal income tax payment due April 15, 2020, is affected by the Coronavirus pandemic for purposes of this special relief. The IRS defines these individuals and entities individually as “Affected Taxpayer”.
The due date for making the federal income tax payment that would otherwise be due on April 15, 2020 if not for this special tax relief, is postponed to July 15, 2020.
Grant of Relief
For individuals, the maximum amount of tax that may be postponed (known as the “Applicable Postponed Payment Amount”) is $1,000,000 regardless of filing status. This means that the Applicable Postponed Payment Amount for a single individual and for married individuals filing a joint return is the same — $1,000,000. Thus, no additional amount is afforded to married individuals filing a joint return.
2. Consolidated Groups and C-Corporations
For consolidated groups (as defined in §1.1502-1) and C-corporations, the Applicable Postponed Payment Amount is $10,000,000 for each consolidated group or for each C-corporation that does not join in filing a consolidated return.
This special tax relief is available solely with respect to Federal income tax payments (including payments of tax on self-employment income) due on April 15, 2020 for an Affected Taxpayer’s 2019 taxable income, and Federal estimated income tax payments (including payments of tax on self-employment) due on April 15, 2020, for an Affected Taxpayer’s 2020 taxable year.
No extension is provided for the payment or deposit of any other type of Federal tax, or for the filing of any tax return or information return.
Waiver of Interest and Penalties
Interest, penalty, or addition to tax for failure to pay the Federal income taxes postponed by this special tax relief will be disregarded from April 15, 2020 to July 15, 2020. Interest, penalties, and additions to tax with respect to such postponed Federal income tax payments will begin to accrue on July 16, 2020.
In addition, interest, penalties and additions to tax will accrue, without any suspension or deferral, on the amount of any Federal income tax payments in excess of the Applicable Postponed Payment Amount due but not paid by an Affected Taxpayer on April 15, 2020. In other words, interest, penalties, and other additions to tax will begin to accrue on April 16, 2020 on any amount which exceeds the applicable $1,000,000 or $10,000,000 threshold.
Again, it is important to note that this extension does not apply to the April 15, 2020 filing deadline and only applies to Federal income tax.
California Tax Filing and Payment Extension
California Franchise Tax Board (FTB)
Similar to the Federal special tax relief described above, the California’s Franchise Tax Board (FTB) announced special tax relief for California taxpayers “affected by the Coronavirus pandemic.” This relief follows Governor Newsom’s March 12 Executive Order.
The FTB has granted an extension to file 2019 California tax returns and certain tax-related payments until June 15, 2020. This extension may be pushed back even further if the IRS grants a longer relief period.
The relief includes extending various tax filing and payment deadlines that occur between March 15, 2020 and June 15, 2020. This includes the following:
- Partnerships and LLCs who are taxed as partnerships whose tax returns are due on March 15 now have a 90-day extension to file and pay by June 15
- Individual filers whose tax returns are due on April 15 now have a 60-day extension to file and pay by June 15
- Quarterly estimated tax payments due on April 15 now have a 60-day extension to pay by June 15
When claiming the special Coronavirus tax relief, taxpayers should write, “COVID-19”, in black ink at the top of the tax return to alert the FTB of this special extension period. For taxpayers that e-file, they should follow the software instructions to enter the disaster information.
The FTB defines “affected by the COVID-19 pandemic” as taxpayers who experience any difficulty in filing or paying, as a result of COVID-19. A taxpayer does not have to be directly impacted. For example, some taxpayers may not be able to get their tax returns prepared due to the unavailability of their paid tax preparers or through free tax preparation programs. Quarantine or infection could also affect someone’s ability to file or pay on time.
By claiming this special tax relief, the FTB will waive interest and any late filing or late payment penalties that would otherwise apply.
California Economic Development Department (EDD) – Payroll Taxes
For employers that are directly affected by the Coronavirus, they may request up to a 60-day extension of time from the EDD to file their state payroll reports and/or deposit payroll taxes without penalty or interest. There is no definition as of the date of this writing for what “directly affected” means.
In order to get this 60-day extension, the EDD must receive from the taxpayer a written request for extension within 60-days from the original delinquent date of the payment or return.
It is unclear how long this 60-day extension will last. Accordingly, employers should be prepared to file and pay any tax amount for the months ahead should the pandemic end and/or if the employer is no longer “directly affected” by the Coronavirus.
Cindy is head of the firm's business and tax team and represents both for profit and nonprofit clients in all types of general corporate transactional matters including entity formations, corporate governance, compensation ...
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John James has over 35 years of experience as a business/tax lawyer, working with businesses, entrepreneurs, and investors. He is known for his expertise in negotiating, structuring, and documenting transactions in various ...
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