Taxpayers May Delay Both Filing Tax Returns and Paying Some Taxes for 90 Days

Q: Congressional Action to Date: What has Congress done in response to the COVID-19 crisis so far that may be of interest to businesses?

A: In early March, Congress passed and the president signed H.R. 6074, the Coronavirus Preparedness and Response Supplemental Appropriations Act. That legislation provides for $8.3 billion in emergency funding for federal agencies to respond to the COVID-19 threat. It includes $2 billion to the Biomedical Advanced Research and Development Authority (BARDA) for vaccine research, $1.3 billion to the Centers for Disease Control and Prevention (CDC), and $20 million to the Small Business Administration (SBA) Disaster Loans Program to help certain small businesses affected by the crisis.

On March 14, 2020, the House passed H.R. 6201, the Families First Coronavirus Response Act (“FFCRA”). That legislation passed the Senate March 18, 2020, and was signed by the President the same day. The FFCRA provides for free diagnosis testing for COVID-19, strengthens unemployment benefit programs and certain food assistance programs, and expands paid leave in limited situations. With respect to paid leave mandated by the FFCRA, the legislation includes a new quarterly payroll tax credit intended to help employers pay for the mandated paid leave obligation. For details regarding the FFCRA, please read our alert: Families First Coronavirus Response Act Provides Tax Credits In Limited Circumstances For Paid Sick And Family Leave

The White House and Treasury Department have circulated a “Stage Three Proposal” on Capitol Hill and the Senate has pledged not to leave town until it enacts additional COVID-19 relief legislation that the President is prepared to sign. The House also is working on a third relief bill.

Q: Deferring Federal Tax Payments: May C corporations or individuals defer both the payment of U.S. federal income taxes for calendar year 2019 and Q1 2020 estimated tax payments past April 15, 2020?

A: Yes. As specified in Notice 2020-17, (a) a consolidated group of corporations (as defined in Treas. Reg. § 1.1502-1) may defer the payment of up to $10 million in U.S. federal income taxes for 90 days with no interest or penalties, (b) each C corporation that does not join in the filing of a consolidated return also may defer the payment of up to $10 million in U.S. federal income taxes for 90 days with no interest or penalties, and (c) all other affected taxpayers, including individuals, may defer the payment of up to $1 million in U.S. federal income taxes for 90 days with no interest or penalties. This relief is available for U.S. federal income tax payments due on April 15, 2020, in respect of the 2019 taxable year as well as federal estimated income tax payments due on April 15, 2020, for a taxpayer’s 2020 taxable year.

Q: Filing of Federal Tax Returns: Must C corporation and individual U.S. federal income tax returns or extensions for the 2019 calendar year be filed by the April 15, 2020, due date?

A: No. Treasury Secretary Steven Mnuchin tweeted on March 20, 2020, that the filing deadline for C corporations and individuals for U.S. federal income tax returns due April 15, 2020 has now been extended to July 15, 2020. This announcement also could apply to other U.S. federal tax returns and information returns; however, more details on the scope of the filing extension still need to be provided in more formal guidance. This announcement was made after the issuance of Notice 2020-17 which indicated that there was no extension of the filing deadline. Taxpayers that are due an income tax refund are encouraged to file U.S. federal income tax returns as soon as possible to help accelerate refunds. This posting will be updated as more information becomes available on tax return filings.

Q: Filing of State Income Tax Returns: Do state income tax returns need to be filed by their due dates?

A: State income tax return due date statutes generally fall into two categories: (1) same date as federal return is due (e.g., Alabama) and (2) fixed date (e.g., Arizona, 15th day following close of calendar or fiscal year). Therefore, absent specific authority, a state taxing authority may not modify such due date. Given the exigencies of this situation, many states are changing their due dates (e.g., consistent with Executive Order N-25-20, California extended to July 15, 2020, the due date for individual income tax returns); you should check your specific state’s filing requirements, as some of these are changing as time passes. Many state taxing agencies have closed or limited in-person taxpayer services and are encouraging taxpayers to use electronic and online services to the extent possible. Taxpayers who are due income tax refunds are encouraged to file their state income tax returns (rather than extension requests) by the due date in order to accelerate refund payments. Automatic extensions of time to file income tax returns continue to be available under existing laws and regulations. Please check your state’s tax agency website for details regarding extension requests. A helpful summary of these details can be located here.

Q: State Income Tax Payments: May I defer the payment of individual or C corporation state income taxes?

A: The March 17, 2020 announcement by Treasury Secretary Steven Mnuchin to allow the deferral of payment of income taxes without interest or penalties applies only to U.S. federal income taxes. The payment requirements for state income taxes vary from state to state; changes are occurring daily. Some states have postponed payment due dates (e.g., South Carolina), and others intend to follow the federal lead (e.g., New Jersey). Please check your state’s taxation website for details about state income tax payment requirements. A helpful summary of these details can be located here.

Q: Other State Tax Filing and Payment Requirement Modifications: Have states modified tax return filing and payment deadlines for taxes other than income taxes such as sales taxes, employment taxes, property taxes, etc.?

A: Yes. In many cases, states have extended tax return filing and payment deadlines for a wide variety of taxes including sales taxes, employment taxes and property taxes. A helpful summary of the details of these extensions can be located here.

Q: Are states planning to follow the federal lead of providing aid to assist individuals and businesses?

A: States are generally required to balance their budgets annually and almost every state has a June 30 fiscal year end. Putting aside that many state assemblies have curtailed their sessions due to COVID-19, taxpayers should expect the next few months, which is typically the period when most state tax legislation is enacted, to be very busy. The COVID-19 pandemic will put a great deal of new pressure on state budgets (e.g., New York state has announced that it anticipates that COVID-19 pandemic will reduce revenues by at least $4 billion in FY 21) and, therefore, now is the time to plan state tax legislative strategy.