Do the IRS read these posts? Twelve hours after setting out our view below, (and frustratingly for our team after having explained to clients why they still needed to take action by 15 April) the IRS provided an advance release of a notice to extend and amplify the previous relief offered. We got this at 23:00 on Thursday before the Easter weekend.
IRS Notice 2020-23, expands the relief to cover all the issues we had identified and expands the relief to additional forms and payments. In effect all filings and payments due between 1 April and 15 July are automatically extended to 15 July.
As it relates to our clients, specified forms now includes: 1040, 1040-NR, 1041, 709, 990-PF (new) and Q1 and Q2 (new) 1040-ES.
And the relief is now explicitly extended to all information returns:
“This relief includes not just the filing of Specified Forms, but also all schedules, returns, and other forms that are filed as attachments to Specified Forms or are required to be filed by the due date of Specified Forms, including, for example, Schedule H and Schedule SE, as well as Forms 3520, 5471, 5472, 8621, 8858, 8865, and 8938.”
As at Thursday 9 April 2020 9:55 BST
The US Treasury, IRS and various state tax authorities have over the last two weeks issued a number of updates, releases, notices and an FAQ covering the corona virus reliefs in relation to tax filing deadlines. The summary is an extension to 15 July 2020 for filings and payments however there is devil in the detail and the relief may not apply as intended, or at least as expected, for many taxpayers and particularly our clients.
Relief: Extension of Federal deadlines
This started initially with the Treasury Secretary quoted saying the Federal filing deadline of 15 April 2020 would be extended to 15 July 2020 which was welcome news. Some time later this was followed by a formal notice form the IRS, that confirmed that for certain individuals, affected by the corona virus, the deadline for filing your federal return and paying taxes due on 15 April would be extended to 15 July (Notice 2020-17).
No sooner, had we emailed all our clients and another notice was issued, now it was decided that all individuals were considered affected by corona virus which was an improvement and extending the relief to other aspects (Notice 2020-18). However, gaps were starting to be identified in these provisions, what about gift tax returns, FBARs, information returns, 2020 estimated tax payments, tax returns due 15 May or 15 June etc. We were advising certain clients now that they may in fact still have to file their Federal extension, Form 4868 by the original 15 April deadline.
Further notices clarified a few of these, for example gift tax returns would be extended to 15 July (Notice 2020-20). Then the IRS released a non-binding FAQ (https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers) which provided further clarification on their interpretation. This resulted in the following highlights:
- They state that the Notice (Notice 2020-18) postpones the filing and payment of Federal income taxes reported on the Forms 1040 & 1040-NR.
- Taxpayers who have filing or payment due dates other than April 15 [e.g. 15 May or 15 June] have not been granted relief at this time.
- The relief does not apply to information returns due on 15 April 2020.
- Confirms, second quarter 2020 estimated income tax payments are still due on June 15, 2020, even though first quarter payments are payable 15 July.
There are a few issues here that particularly impact US taxpayers living overseas and therefore many of our clients. The spirit of the relief seems clear, if you are filing a Form 1040 or 1040-NR then the deadline to file and pay taxes is extended to 15 July 2020. Sadly, it is not that straight forward.
At point 2 above, the IRS go on to say, that this relief is for tax filings or payments due on 15 April, whereas a US taxpayer residing overseas have an automatic two month extension for filing and paying taxes (notwithstanding that interest accrues from 15 April) – are these taxpayers and their returns therefore outside the scope of relief? There is no clarification, however my belief and across our industry the perception appears to be that these taxpayers are included, 15 June being an extended deadline and at least within the spirit of the measure.
The IRS are clear however, that information returns are not included in this extension, but even then that leaves a lot of questions. Again, there is no further clarification.
There are a lot of information returns, and many clients with foreign assets will be filing them e.g. Form 8938 to report bank accounts and financial assets, Form 8621 to report passive foreign investment companies, Form 8865 for a foreign partnership and Form 5471 for a foreign company and Form 3520, for a beneficiary or grantor of a foreign trust or recipient of a gift from a foreign person. Are all these forms, not covered by the relief, requiring any taxpayer submitting one of these forms to file an extension? Some taxpayers may not even yet know if they are going to file one of these forms.
Looking a bit closer, a Form 3520 for a beneficiary or grantor of a foreign trust, is filed separately from your tax return and the IRS instructions to the form, reference the date the form is due e.g. specifically 15 April (or 15 June for taxpayers residing overseas). Compare, this with a Form 8938 Statement of Specified Foreign Financial Assets, for which the IRS instructions say you need to “attach to your annual return and file by the due date (including extensions) for that return”. To my mind, any information return that you attach to your Form 1040, and is due at the due date for that 1040, must itself be extended by the relief. However, a standalone information return, like a Form 3520 does not appear to benefit from this relief (though for taxpayers overseas should still be extended to 15 June) and as such would need a Form 4868 extension. Those however, are just my thoughts, it is not clear.
Finally, there is the madness that you will pay your second quarterly estimated tax payment for 2020 one month before your first!
It is the matter of the information returns that is a real concern for us and the lack of clarity. We always prefer to take a most cautious approach so we will generally be recommending clients stick to the original filing deadlines for their extension and the original payment deadlines for payment, where they can. We summarise as follows:
- Any clients living in the US, who do submit, or may submit, information returns, file an extension by 15 April. We believe the payment should still be due 15 July 2020, but paying by 15 April would be the most cautious approach to ensure a valid extension.
- Any clients living outside the US, who submit information returns should file an extension by 15 June. We believe the payment should still be due 15 July 2020, but again paying by 15 June would be the cautious approach and any additional amounts paid could still count towards your first and second quarter 2020 estimated tax payments.
- Clients who do not submit information returns should have until 15 July 2020 to file and pay taxes.
A brief comment on state tax deadlines. At this time, almost all states that we have looked at, have followed the Federal approach of extending filing and payment deadlines until 15 July. There are a number of exceptions who will still charge interest from 15 April and Virginia has a 1 June 2020 deadline. We recommend however, checking with your adviser for any states in which you intend to file a return, as the updates keep coming and we do not have filings in every state.
If you have questions or need any support regarding tax planning and advice, our friendly team at Ingleton Partners will be able to support your requirements. Please contact us on +44 (0) 207 183 2251 or email email@example.com.