Practitioners cheered the IRS’s clarifications on many of the issues raised in its latest notice about the 2020 filing season, but the agency’s limited use of guidance so far still has some of them feeling uneasy.
The IRS posted an FAQ on March 24 addressing a variety of questions about how far the relief in Notice 2020-18, 2020-15 IRB 1, extended. With few exceptions, the IRS has only postponed federal income tax payments and return filings that were due April 15, leaving in place the due dates for other types of taxes and other non-April 15 deadlines.
Rochelle Hodes of Crowe LLP told Tax Notes she was puzzled over why Treasury and the IRS have offered only targeted relief, given that it’s clear that individuals and businesses across the country are struggling to cope with the coronavirus crisis.
She predicted that the IRS will eventually offer more expansive tax relief for taxpayers through further guidance.
“It’s my experience that generally, even if they don’t start there, the IRS ends up at the right place on many issues, especially issues about relief and disasters,” Hodes said. “It’s my hope that at the end of the day, we’ll all get to a place where the unusual circumstances we’re in will be taken into account.”
And it’s not just the current filing season that the IRS will have to address, including how it intends to treat taxpayers undergoing examination or in the middle of collection, Hodes continued. Once the coronavirus crisis eventually blows over, there’s going to be a “ripple effect of catching up” and providing options for taxpayers to do so.
“So this has a long tail. There will be a lot coming on this for a while,” Hodes said.
Lisa M. Zarlenga of Steptoe & Johnson LLP similarly observed that the IRS has been “surprisingly stingy” when it comes to coronavirus-related tax relief. The IRS invoked section 7508A in its notice to give it authority to provide disaster relief, and that section gives the agency broad authority. But there are still a lot of options the IRS could exercise that it hasn’t yet, she said.
The IRS deserves credit for issuing two notices — the other was Notice 2020-17, 2020-15 IRB 1 — and the FAQ, “but it just seems like maybe they should go full-bore and do the broader 7508A relief,” Zarlenga said.
That’s a recommendation recently made by the American Institute of CPAs, which welcomed the IRS’s announced relief but called on the IRS and Treasury to go further and extend that relief to all taxpayers. In a March 26 letter, the AICPA urged the IRS and Treasury to give taxpayers until July 15 to file or pay all income tax, information returns, and payments or installments that would ordinarily be due between March 3 and July 15.
The AICPA letter noted that the IRS granted far more comprehensive payment and filing relief under section 7508A to victims of tornadoes in Tennessee just this month, yet “relief comparable to that . . . has not been allowed for taxpayers and tax advisers who are actively trying to comply with the Centers for Disease Control and Prevention’s and World Health Organization’s safety measures.”
“At a minimum, Treasury and the IRS should offer generous and immediate reasonable cause relief for the filing of any tax returns, information returns, elections, correspondence, or payments not covered under the Notice but affected by COVID-19,” the AICPA wrote.
More Issues
The IRS indicated that it intends to update its filing season FAQ page periodically to answer further questions, but in the meantime, practitioners have plenty of suggestions.
One issue Hodes would like to see the IRS address concerns information returns. The FAQ states that information returns are not subject to the deadline extension in the notice, but some information returns, like forms 5471, 5472, and 8865, are required to be filed with a taxpayer’s income tax return, she said.
In fact, Hodes noted, the agency’s Large Business and International Division has an active campaign to stop taxpayers from “loose filing” their Form 5471, “Information Return for U.S. Persons With Respect to Certain Foreign Corporations.” Logically, the deadline for those forms should be the same as whatever the postponed deadline is for the corporate or individual tax return, but by definition, they’re also information returns, she said.
“In my mind, the answer should be that you don’t have a separate filing date for those, because IRS clearly doesn’t want them filed separately,” Hodes said. But for now, that remains a guess, she said, adding that she hopes the IRS addresses the issue in an addition to the FAQ.
Among a list of additional questions the AICPA offered was one about how the notice extended the April 15 estimated tax payment deadline to July 15, but the FAQ indicated that the June 15 deadline for second-quarter payments remains unchanged. The AICPA asked the IRS to clarify whether an estimated tax overpayment made July 15 would be treated as a first-quarter payment and whether that overpayment would count toward any required second-quarter tax payments.
The AICPA also sought relief beyond the notice, including requesting that the IRS relax requirements on manual signatures, provide relief from the normal statute of limitations and the 90-day period for responding to a notice of deficiency, and clarify whether nonresident alien taxpayers who cannot leave the United States because of travel restrictions related to COVID-19 will trigger the substantial presence test.
Although Zarlenga agreed that broad-based relief is ideal, she acknowledged that the IRS will likely need to deal with some narrow tax situations on a case-by-case basis. She said she’s already fielded questions about whether there might be relief regarding Opportunity Zones, such as whether the built-in rule allowing a 24-month extension for investments made by a qualified Opportunity Zone business would be extended to qualified opportunity funds.
‘Legal Comfort’
The IRS FAQ itself states that it is informal guidance that cannot be cited as legal authority. Absent further, authoritative guidance, that leaves taxpayers with unnecessary uncertainty, some practitioners say.
The FAQ specifically addresses the deadlines for making contributions to a health savings account or IRA for 2019, saying that those deadlines were indeed extended to July 15, but Notice 2020-18 doesn’t explicitly provide that relief, according to Justin Miller of BNY Mellon Wealth Management.
The IRS invoked section 7508A in the notice for its authority to extend deadlines, but reg. section 301.7508A-1(b)(4) states that postponing a tax-related deadline doesn’t extend the underlying due date for the act; it merely allows the IRS to disregard the deadline for a period of time, Miller explained. Further, the regulation states that to the extent other statutes rely on the due date for a return being filed, the postponement doesn’t change the due date of the return.
That becomes problematic in light of sections 219(f)(3) and 223(d)(4), which tie the due dates for IRA and HSA contributions to the due date for tax returns. Miller said that while he hoped the IRS’s interpretation in the FAQ regarding HSA and IRA contributions was correct, “we would also hope we can get legal comfort in official guidance.”
The solution isn’t complicated, according to Miller. The IRS simply needs to issue another notice that specifically provides that the due dates for IRA and HSA contributions are extended, or Congress could pass legislation changing the statutory due date for tax returns for 2019 to July 15, he said.
A provision to do just that was featured in an early draft of the Senate Republican's phase 3 coronavirus relief bill, but it was cut by the time the Senate voted on the final measure.
Zarlenga, however, was less concerned about the FAQ’s lack of legal authority. “They’re answering questions they got on the notice, and they really didn’t seem to go too far beyond the four corners of the notice,” she said.
Taxpayers and practitioners had many questions about the notice, so “that seems like the ideal situation for FAQs, because you can still cite back to the notice as guidance which taxpayers can rely on, and these are just the interpretation of the notice,” Zarlenga said.
“I’m sure we’ll see a lot more of them,” she added.
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Correction, March 27, 2020: This article has been updated to reflect an additional deadline change to a FATCA reporting deadline for foreign financial institutions.