Tax Law Update During COVID-19 Pandemic
As the facts change daily due to the COVID-19 epidemic, families face fears about the health and safety of their loved ones and their economic futures. Businesses face countless legal issues involving employment law, insurance issues, contractual questions, and more. Johnson Pope’s tax, business and estate planning lawyers are here to assist your family and your business with questions about matters involving taxes. Summarized below is a report on actions recently taken by the U.S. Internal Revenue Service to ease compliance burdens and economic pain caused by COVID-19.
INTERNAL REVENUE SERVICE
The IRS is curtailing certain operations due to the COVID-19 outbreak but is continuing with mission-critical functions including accepting tax returns and sending refunds. As of March 25, the Service announced a set of sweeping steps to help ease the burden on people facing tax issues. The changes range from postponing certain payments related to Installment Agreements and Offers in Compromise to modifications in collection procedures and limitation of certain enforcement actions. The projected start date for the People First Initiative is April 1 and the effort will initially run through July 15. The IRS will generally not start new field office and correspondence examinations during this period, but will do so where it is necessary to protect the government’s interest under Statutes of Limitation. Appeals employees will continue to work their cases.
tax returns and payments
On March 13, 2020, the President issued an emergency declaration under the Stafford Act in response to the COVID-19 pandemic. The IRS then issued Notice 2020-17, postponing the due date for filing federal income tax returns and payments for 2019, as well as 2020 quarterly estimated tax payments due April 15, 2020. The due date is automatically postponed until July 15, 2020. Taxpayers are not required to file a request for an extension of time. The relief is solely available for income tax payments (including payments of tax on self-employment income) and quarterly estimated tax payments. No extension is provided for any other kind of federal taxes, such as estate and gift taxes or payroll and excise taxes, nor is any extension granted for informational returns. Any “person” with a return or payment due on April 15 is eligible, including individuals, trusts, estates, corporations, or unincorporated business entities. However, taxpayers who have filing or payment due dates other than April 15 have not been granted relief at this time.
The IRS recommends that taxpayers file returns as soon as possible if a refund is owed. Refunds will continue to be paid. E-file is recommended. Corporations may request quick refunds of overpayment of estimated taxes by filing Form 4466, but the deadline for filing that form has not been extended.
Taxpayers may still request extensions of time to file (so that returns will be due October 15), but payment is still required by July 15! Interest and penalties will be disregarded in the calculation of payments for the period up to July 15.
iras, qualified plans, and hsas
The deadline for contributions to your IRA has also been postponed until July 15. For more details on IRA contributions, see Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs). Employers for whom the due date for filing Form 1120, the grace period for the employer to make contributions to its workplace-based retirement plan that are made for 2019 are also extended until July 15.
Health savings accounts (HSAs) have both advantages and disadvantages relative to Flexible Spending Accounts when paying for health expenses with untaxed dollars. One disadvantage is that a qualifying HSA may not reimburse an account beneficiary for medical expenses until those expenses exceed the deductible level. However, the IRS has announced that payments from an HSA that are made to test for or treat COVID-19 don’t affect the status of the account as an HSA (and don’t cause a tax for the account holder) even if the HSA deductible hasn’t been met. Vaccinations continue to be treated as preventative measures that can be paid for without regard to the deductible amount. Taxpayers have an extension of time until July 15 to contribute money to HSAs or Archer MSAs for 2019.
small and midsized businesses
Under the Families First Coronavirus Response Act (Act), signed by President Trump on March 18, 2020, small and midsized employers (with fewer than 500 employees) may begin taking advantage of two new refundable payroll tax credits, designed to promptly and fully reimburse, dollar for dollar, the cost of providing leave related to COVID-19 to employees. In return for providing paid leave, employers receive a tax credit against the employer’s 6.2 % of the Social Security payroll tax. The Emergency Family and Medical Leave Expansion Act division of the Act provides a tax credit corresponding with a family leave mandate for employees that must take time off to care for a minor child. Please contact us for details about the necessary calculations. Unfortunately, the tax credit is not yet available; it will apply to wages paid in a period to be determined by the IRS beginning after April 2, 2020 and ending December 31, 2020.
For detailed information about the Families First Corona virus Response Act, see https://www.jpfirm.com/news-resources/an-employers-guide-to-frequently-asked-questions-about-reductions-in-force-and-unemployment-compensation-related-to-covid-19/ and https://www.jpfirm.com/news-resources/what-employers-need-to-know-about-the-families-first-coronavirus-response-act/
Persons who have not filed their returns for tax years before 2019 should file their returns. More than one million households are actually owed a refund.
new installment agreements
The IRS is reminding those who are unable to fully pay their federal taxes that they can resolve outstanding liabilities by entering into a monthly payment agreement (Installment Agreement) with the IRS.
For taxpayers under existing Installment Agreements, payments due between April 1 and July 15 are suspended. Taxpayers who are unable to comply may suspend payments. The IRS will not default any Installment Agreements, but interest will continue to accrue.
OFFERS IN COMPROMISE
If you are facing a tax liability exceeding your net worth, the Offer in Compromise (OIC) program is designed to assist resolution by providing a fresh start. For pending OIC agreements, taxpayers have until July 15 to submit supporting information. For existing agreements, taxpayers have the option of suspending all payments until July 15, although interest will continue to accrue. The IRS will not default an OIC for delinquent taxpayers for the tax year 2018, but taxpayers should file any delinquent returns (and 2019 returns) before July 15, 2020.
COLLECTION PROCEDURES, LIENS AND LEVIES
Liens and levies (including any seizures of a personal residence) initiated by field revenue officers will be suspended until July 15. However, field revenue officers will continue to pursue high-income non-filers and perform other similar activities where warranted.
Automated Liens and Levies – New automatic, systemic liens and levies will be suspended during this period.