Payment Deadline Extended

By Bahar A. Schippel and William A. Kastin

In response to the COVID-19 pandemic, IRS Notice 2020-17 (the “Notice”) postpones to July 15, 2020, the due date for making a Federal income tax payment otherwise due on April 15, 2020.  This relief is available for individuals and corporations but, as explained below, is subject to certain limitations and nuances. The tax return filing deadlines have not been extended, although taxpayers remain able to extend filing deadlines by timely complying with the normal procedures for obtaining filing extensions.

A. $1 Million Threshold for Individuals

For individuals, the due date for the payment of Federal income taxes is only extended for an aggregate amount of up to $1 million and this threshold applies to all individuals, regardless of the taxpayer’s filing status – that is, for both single individuals and for married individuals filing a joint return, the threshold in both instances is $1 million.

B. $10 Million Threshold for Corporations

For each consolidated group of corporations and for each C corporation that does not join in filing a consolidated return, the due date for the payment of Federal income taxes is only extended for an aggregate amount of up to $10 million. 

C. Types of Taxes Covered

The relief provided by the Notice is available with respect to (i) Federal income tax payments, including payments of tax on self-employment income, for the 2019 tax year, which are due on April 15, 2020 ¹, and (ii) Federal estimated income tax payments, including payments of tax on self-employment income, for the 2020 tax year, which are due on April 15, 2020.

D. Practical Impact

For Federal income tax payments, which are postponed in accordance with the Notice, the period beginning on April 15, 2020, and ending on July 15, 2020, will be disregarded in the calculation of any interest, penalty or addition to tax for failure to pay the Federal income taxes postponed by the Notice.  Interest, penalties and additions to tax respecting those amounts will begin to accrue on July 16, 2020.

To be clear, Federal income tax payments in excess of the thresholds described above ($1 million for individuals and $10 million for corporations), which are due on April 15, 2020 but which are not timely paid at that time, will accrue interest, penalties and additions to tax beginning on April 15, 2020.

Also worth noting is that the Notice only offers relief for Federal income tax payments due on April 15, 2020.  As such, if during the 2019 calendar year, a taxpayer failed to pay such taxpayer’s 2019 estimated tax payments, then it appears that the automatic relief offered by the Notice is not available with respect to such amounts; and accordingly, interest and penalties (if applicable) will continue to accrue on such amounts.  However, individuals and certain trusts and estates (but not corporations) may still be able to avoid penalties for failure to timely pay their 2019 estimated tax payments under certain reasonable cause exceptions of the Internal Revenue Code.   

E. No Extension for the Payment of Other Taxes

The Notice does not extend the time for the payment or deposit of any other type of Federal Tax.

F. No Extension for the Filing of Tax Returns

The Notice does not extend the time for the filing of any tax return or information return. 

Guidance in response to the COVID-19 pandemic is constantly being updated. This article is merely intended to introduce you to the Notice and is not a substitute for careful tax planning. If you have any questions, you are strongly encouraged to reach out to your tax advisor.