IRS Provides Additional Guidance on Deferred April 15 Payments

The IRS Chief Counsel Office issued Notice 2020-17 on March 18 which provides more details regarding the deferral of federal income tax payments previously discussed by Treasury Secretary Mnuchin, which was the subject of a prior Marcum Tax Flash.

The current guidance provides that all taxpayers are considered affected by the COVID-19 crisis and are defined as Affected Taxpayers eligible for the deferral of federal income tax payments due on April 15, 2020, until July 15, 2020, without imposition of penalty or interest. This deferral applies to income tax due up to the “Applicable Postponed Payment Amount” (APPA), which is:

• $10 million for each consolidated group of C corporations or for each corporation which does not join in filing a consolidated return; and
• $1 million for other taxpayers. The Notice confirms that this latter amount applies to individuals regardless of filing status. This means that a single person filing a federal income tax return has the same $1 million Applicable Postponed Payment Amount as a married couple filing a joint return. This rule effectively creates a cash flow marriage penalty on joint filers.

The Notice also says that any tax due in excess of the APPA will be subject to penalties and interest if not paid by the original April 15 due date. This means that if a single individual filer owes $2 million for 2019 federal income taxes, including self-employment tax, the payment of the first $1 million can be deferred until July 15, 2020, but the additional $1 million will be subject to penalties and interest if not paid by April 15. In this situation, one could request an abatement of the penalties by the Service on the additional $1 million due to “reasonable cause.” However, it would be up to the Service to determine whether this request is granted. The interest would generally not be abated.

The Service clarifies that estimated tax payments due on April 15 are covered under this deferred payment rule. However, this suggests that the second estimated tax payment due on June 15 is not covered, unless Treasury changes its position. The Notice does note that an individual and certain trusts and estates can seek a penalty waiver for underestimation of tax from the Commissioner, due to casualty, disaster or “other unusual circumstances,” where the imposition of the penalty would be against equity and good conscience. However, a comparable right to request a penalty waiver for underestimation of tax does not apply to a corporation.

The right to defer payment of tax applies only to income taxes related to the 2019 tax return. It does not apply to other taxes, e.g., payroll taxes, gift taxes or excise taxes.

The Notice makes express that the deferred payment rule does not extend the filing date of the income tax return past April 15, 2020. Affected taxpayers should request extensions of time to file their income tax returns under the normal rules.

A number of questions remain open. We will update you when we receive additional clarification.

If you have any questions, do not hesitate to contact your Marcum tax professional.

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