For generations, April 15th has been recognized as the day set aside for everyone to remember the civic duty of paying our taxes. Whether one has a refund or a balance due, attention turns toward taxes when April 15th turns up on the calendar. This year, however, is different in many respects. Many businesses and individuals had a different vision for 2020 than the blur that surfaced over the last month. With the onset of the Coronavirus, many lives, businesses, communities, and more have been turned upside down.
Congress got involved and passed three bills in March aimed to address the challenges presented by the Coronavirus, with the most recent legislation – the CARES Act – offering over $2 trillion in relief to individuals, businesses, and others. The IRS also was drawn into the mix dealing with many logistical issues related to filing 2019 tax returns, as well as addressing the new laws passed by Congress. As you may know, several weeks ago the IRS issued guidance deferring any tax returns and tax payments due on April 15, 2020 and postponing these items until July 15, 2020. There is no need for individuals or businesses to file any extensions to get this postponement – it is an automatic deferral of the due date to July 15, 2020.
The IRS has issued several significant pieces of guidance over the past week. We wanted to highlight the following key IRS developments for you:
- Individual Tax Rebates
- Payroll Tax Deferral for Employers
- Net Operating Loss (NOL) Guidance and Temporary Filing Procedures
- Expanded Relief for Filing Tax Returns and Making Tax Payments
Individual Tax Rebates (Officially Called “Economic Impact Payments”)
Individuals are eligible for a rebate of $1,200 (and $2,400 if married filing jointly), plus $500 per qualifying child. This rebate is available for individuals with Adjusted Gross Income (AGI) of $75,000 or less (for single taxpayers; $150,000 or less for married couples filing jointly) and is phased out for taxpayers with AGIs above these thresholds. This rebate is available even for individuals with no income.
The IRS started issuing these rebate checks the week of April 13, 2020. The initial payments will be handled by direct deposit to the taxpayer’s bank account. Other payments will be mailed out to taxpayers in the coming weeks. The IRS provides guidance on these rebates and addresses various questions posed by taxpayers. Here are some resources, including a new “Get My Payment” page launched by the IRS today:
Payroll Tax Deferral for Employers
This CARES incentive permits employers and self-employed individuals to defer the employer’s share of the FICA tax for their employees (employers are responsible for paying a 6.2% FICA tax on employee wages). The payroll deferral period begins on March 27, 2020 and runs through December 31, 2020. The provision allows the deferred payroll tax to then be paid over the following two years: half paid by December 31, 2021 and half by December 31, 2022.
This payroll tax deferral is essentially an interest-free loan from the government. The IRS issued its first guidance on this provision on April 10, 2020 in a FAQ on its website. A few items to note:
- Question #4 deals with companies that have applied for a Paycheck Protection Program (PPP) loan that may be forgiven if certain requirements are met after an eight-week period. The IRS FAQ on payroll tax deferral indicates that a company can use the payroll tax deferral up to the point it receives notification that its loan will be forgiven. Thus, it can use the payroll tax deferral for that interim period. This might amount to an eight to 10 (or more) week period. There was some uncertainty whether a company with a PPP loan could also use this payroll tax deferral, but the IRS indicated this would work until a company receives word of a loan forgiveness, and then at that point, no more payroll taxes could be deferred.
- Question #2 addresses how to report and record this payroll tax deferral. The Form 941 will be adjusted soon for the second quarter of 2020 to reflect the deferred payroll taxes.
- Questions #5 and #6 address the interaction of the FFCRA leave program and this payroll deferral provision.
- IRS FAQ on this Payroll Tax Deferral
Net Operating Loss (NOL) Guidance and Temporary Filing Procedures
The recent CARES legislation relaxes the new limitations from TCJA related to NOLs. First, any NOLs incurred in 2018, 2019, or 2020 can be carried back five years to obtain a refund of prior years’ tax liabilities. Prior to this, NOLs needed to be carried forward, so this change could provide a cash infusion for a struggling business. Further, another NOL change removes the taxable income limitation for NOLs.
Late last week, the IRS issued guidance relating to these NOL relief measures in CARES:
- Rev Proc 2020-24 offers the NOL carryback guidance in several situations. The Rev Proc describes how taxpayers with NOLs arising in taxable years 2018, 2019, or 2020 can elect to either waive the carryback period for those losses entirely or to exclude from the carryback period for those losses any years in which the taxpayer has an inclusion in income as a result of Section 965(a).
- Notice 2020-26 extends the deadline for filing an application for a tentative carryback adjustment. One item in Notice 2020-26 indicates that for an NOL incurred in the 2018 year, the normal due date for a Form 1139 or Form 1045 carryback would be December 31, 2019; but this date has been extended until June 30, 2020.
- That’s the Fax. Due to the Coronavirus, the IRS is temporarily closing many of its service centers and stopped the processing of paper filed tax returns. The NOL carryback is generally used to file a carryback claim, but the Form 1139 (for C Corporations) and Form 1045 (for Individuals) are paper filed forms, and no e-filing is available. Thus, the paper filed forms would sit for weeks or months with no refunds issued. To address this, the IRS announced on April 13, 2020 that Form 1139 and Form 1045 can now be filed by fax. The Form 1139 and Form 1045 cannot begin to be filed via fax until Friday, April 17, 2020.
Expanded Relief for Filing Tax Returns and Making Tax Payments
As indicated above, the IRS previously extended the due date of individual tax returns and tax payments due April 15, 2020 until July 15, 2020. On April 10, 2020, the IRS issued Notice 2020-23 that further extended many tax returns and tax payment obligations. As a rule of thumb, any tax return or tax payment, except for payroll taxes, due on or after April 1, 2020 through July 15, 2020 is extended until July 15, 2020. The following should be noted from this additional extension granted by the IRS:
- All taxpayers are deemed to be impacted by the disaster and thus eligible for the tax relief in Notice 2020-23. They do not need to show or prove any hardship or impact by the disaster.
- The notice further indicates this relief applies for tax return filings and tax payments, which are due to be performed on or after April 1, 2020 and before July 15, 2020. This relates to original due dates or due dates with a valid extension.
- This postponement applies to: Individuals; corporations (C Corps and S Corps) with calendar year and fiscal years; partnerships with calendar year and fiscal years; estate and trust (fiduciary) income tax returns; estate tax returns; and gifts tax returns.
- Form 990 Series for Exempt Organizations. Notice 2020-23 did not specially list Form 990, but the IRS clarified that the form was included on April 14, 2020. Thus, the Form 990 series is included in this tax relief.
- Quarterly Tax Filings: Individuals (Form 1040-ES); trust and estates (Form 1041-ES); and corporations (Form 1120-W) are covered. Thus, the 2020 second quarter individual estimate (as well as for fiduciaries and corporations) that was due June 15, 2020 has been extended until July 15, 2020.
- The IRS indicated that Notice 2020-23 also applies for any “Time-Sensitive Action.” A time-sensitive action is spelled out in Rev Proc 2018-58. Rev Proc 2018-58 is an important resource in this exercise. It covers a long list of time-sensitive actions spread across the tax code. This includes for instance, dates for a Section 1031 exchange; a Section 83(b) election; and many, many more.
- Carefully review Notice 2020-23 to see if there are any tax filing or tax payments you need to make and to find out if they are addressed.
This is not the end of IRS guidance, but hopefully the above items will assist you as you deal with the ever-changing tax landscape. We will offer more updates as they are provided. Please contact your Sikich advisor with any questions you may have. Be Well.