Dear Client:
I hope you and your family are well as we all take the precautionary steps to limit this virus impact. I know you already know to wash your hands, so I will provide you with a COVID-19 Tax Update as we just got a bit more official information.
IRS RULES:
US Treasury grants extension to pay, but not file (03-17-20):
At a press conference held today, U.S. Treasury Secretary Mnuchin announced the following extensions for federal income tax payments:
- Individuals and businesses with an April 15 filing deadline will be given an additional 90 days to pay taxes;
- Individuals will be able to defer up to $1 million of tax liability; and
- Corporations get an extension for up to $10 million.
Mnuchin was not specific about late-filing penalties for either the March 15 or April 15 deadlines, but it appears interest and penalties will be waived automatically. He stated, “All you have to do is file your taxes. You will automatically not get charged interest and penalties.” Americans who want to defer their tax payments will need to file a return to qualify.
The White House and the Treasury Department have indicated they intend to postpone the filing deadline. However, the IRS has not yet issued an official notice of a postponement, or any guidance on the issue. Please do not count on an automatic extension of time to file, an extension of time has not been granted yet. The Internal Revenue Code grants the IRS authority to postpone deadlines by reason of a federally declared disaster under the Stafford Act. Because the President invoked the Stafford Act to declare a national emergency rather than a national disaster, it is unclear whether the IRS has authority to postpone the filing deadline.
Upon any further guidance of extension of time to file; if you don’t file by April 15, you may still be charged a separate penalty for not filing timely.
IRS 2020 Estimates:
The IRS hasn’t stated whether taxpayers can also defer estimated-tax payments for the first quarter of 2020, which are also due on April 15.
CALIFORNIA FRANCHISE TAX BOARD RULES:
California grants extension to file and pay (03-16-20):
On March 13, 2020, the FTB announced special tax relief for California taxpayers affected by the COVID-19 pandemic. Affected business and individual taxpayers are granted an extension to file 2019 California tax returns, and make certain payments, until June 15, 2020. This relief is in line with the Executive Order issued by the Governor on March 12, 2020.
For calendar-year taxpayers, this is a three-month automatic extension for partnerships and S corporations, and a two-month extension for all other taxpayers.
The FTB’s June 15 extended due date may be pushed back even further if the Internal Revenue Service grants a longer relief period.
California’s extension
The relief includes moving various tax filing and payment deadlines that occur on March 15, 2020, through June 15, 2020, to June 15, 2020, including:
- 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;
- Corporations and individual filers whose tax returns are due on April 15 now have a 60-day extension to file and pay by June 15; and
- Quarterly estimated tax payments due on April 15 now have a 60-day extension to pay by June 15.
The FTB will also waive interest and any late filing or late payment penalties that would otherwise apply.
How to claim the benefit
Taxpayers claiming the special COVID-19 relief should write the name of the state of emergency (for example, COVID-19) in black ink at the top of the tax return to alert the FTB of the special extension period. If taxpayers are e-filing, follow the software instructions to enter disaster information.
Who qualifies?
According to the FTB, a taxpayer does not have to be directly impacted to qualify for relief. Taxpayers who experience any difficulty in filing or paying, as a result of COVID-19, are included in this relief. 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.
It is unknown how easy California FTB will grant the relief or how strict their guidelines will be to prove a taxpayer was affected by COVID-19.
To file or not to file really depends on how you are affected between IRS and CA, do you owe, do you have a refund, etc. We are continuing to press forward and process tax returns just in case the rules changes. Many clients are uploading documents using the secure link below my email address that states “Click Here to Send Me Files Securely”, mailing documents in, or dropping documents off to avoid the person to person meetings.
I know taxes are very insignificant to everyone’s health, but we are getting a lot of questions and wanted to provide you with the latest information. We will provide additional information if there is any additional significant information. Please stay safe out there, we will get through this! Mike