Tax preparers who hoped upcoming tax filing deadlines for individuals and businesses would be delayed due to the new coronavirus were left disappointed by the IRS.
The IRS in a notice released Wednesday elaborated on earlier comments from Treasury Secretary Steven Mnuchin that individuals and businesses would be allowed to defer tax payments due April 15 until July 15 without interest and penalties. The tax relief is meant to soften the blow of the Covid-19 pandemic.
The guidance contained some new information, including that the tax relief would apply to estimated income tax payments owed by certain taxpayers, such as those who are self-employed. But overall the department stuck to the policies previously laid out by Mnuchin, including the decision to keep the current April 15 due date for people to file their tax forms.
Mnuchin, in a news release accompanying the new guidance, said the filing date was kept the same because the government wants people to get their tax refunds as soon as possible. But having one set of dates and rules for filing and another set for paying is likely to confound many taxpayers, said Ryan Ellis, a conservative tax lobbyist who is also an enrolled agent.
“Mostly, this is going to result in confusion,” Ellis said.
Treasury needs to drive home the fact that people still need to file to prevent any misunderstandings, said Troy Lewis, a CPA and associate professor at the Brigham Young University Marriott School of Business.
“There needs to be some sort of education process,” he said.
Requesting Extensions
Mnuchin previously urged anyone who needs more time to file to request an automatic six-month filing extension through Oct. 15.
Tax preparers will need to stress to clients that they have the option to file for an extension, given that many won’t be able to meet the deadline under the current circumstances, said Cindy Hockenberry, director of tax research and government relations at the National Association of Tax Professionals.
Taxpayers failing to file their returns or request an extension by April 15 could get hit with large penalties—but only if they owe tax. The penalty for failing to file a tax return is 5% of the unpaid tax that should be reported, charged monthly for up to five months. If a person files more than 60 days late, the minimum penalty is the lesser of $435 or 100% of the unpaid tax.
Tax professionals raised concerns that social distancing measures being used to stop the spread of the virus could make filing a return or extension more difficult for individuals who usually meet with their tax preparer in person—either because they don’t want to share their sensitive taxpayer information over email or they don’t have access to the technology they need to effectively communicate remotely.
Those individuals may need to figure out how to file the extension on their own, Ellis said.
American Institute of CPAs’ President and CEO Barry Melancon, on Wednesday called for the IRS to delay the filing deadline, noting that nearly 60% of all taxpayers turn to a tax practitioner to prepare and file their returns. Even the relatively simple process of asking for an extension “requires calculations based on data and information from the taxpayer,” he said.
The extension request form used by individuals, Form 4868, requires taxpayers to properly estimate their liability, enter that amount on the form, and file the extension by April 15.
“Given the current environment, this extension process is impossible for many taxpayers,” Melancon said.
State Conformity
Despite the concerns, practitioners were glad to get much-needed clarity on the tax relief Mnuchin had alluded to since last week.
Extra verification is good because there was a lot of confusion, said Nicole DeRosa, a tax manager at WithumSmith+Brown PC in New Jersey.
DeRosa said her firm is now turning its attention to what the states are doing in response to the new guidance and whether they will follow the federal government’s lead.
“We’re all concerned about the states,” she said. “Some states have already issued guidance, but other ones have not come out and said anything about what they’re going to do.”