The AICPA on Thursday released some suggestions for practitioners regarding issues that have arisen around the postponed May 17 tax due date for individuals.
The postponement, announced by the IRS in March (see Notice 2021-21), applies to any individual who files a federal individual income tax return on Form 1040, 1040-SR, 1040-NR, 1040-PR, 1040-SS, or 1040(SP) (the Form 1040 series) or has a federal tax payment reported on one of these forms that would otherwise be due April 15, 2021. The notice also moved the deadline to May 17 for claims for credit or refund of federal income tax that absent the notice would expire on or after April 15, 2021, and before May 17, 2021. The notice also postponed to May 17 the time for affected taxpayers to make 2020 contributions to their individual retirement arrangements (IRAs and Roth IRAs), health savings accounts (HSAs), Archer medical savings accounts (Archer MSAs), and Coverdell education savings accounts (Coverdell ESAs).
However, the notice did not postpone the April 15, 2021, due date for first-quarter 2021 estimated tax payments. It also did not address the appropriate way to extend Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, which is normally extended when a Form 1040 extension is granted.
The AICPA issued the following statement along with its recommendations:
The situation regarding the May 17 bifurcated filing and payment due date with IRS keeping the 1st quarter estimated payment at April 15 is extremely fluid as AICPA releases this statement and suggestions. There are significant efforts underway on Capitol Hill where (1) a bill has been drafted in the House that would change the 2021 1st quarter estimated payment due date to May 17; (2) a companion bill is being considered in the Senate; and (3) IRS Commissioner [Charles] Rettig has been called to testify at an April 13 Senate Finance Committee hearing on “The 2021 Filing Season and 21st Century IRS.”
Despite our efforts, the IRS continues to maintain that the due date for taxpayers required to make a first quarter estimated tax payment will remain as April 15. We are aware that April 15 is fast approaching, and every day relief is not granted presents enormous challenges for many taxpayers and their CPAs. We remain grateful for the pending Congressional relief and hopeful that those of you continuing to struggle at this late hour will benefit.
The AICPA summarized its recommendations as:
- In order to ensure that the 1st quarter 2021 estimate is credited to April 15, the taxpayer will need to pay the estimate on a Form 1040-ES or make an online payment directed to 2021 on or before April 15.
- To file an extension for a gift tax return (Form 709), Form 4868 [Application for Automatic Extension of Time to File U.S. Individual Income Tax Return] or Form 8892 [Application for Automatic Extension of Time to File Form 709 and/or Payment of Gift/Generation-Skipping Transfer Tax] should be filed on or before April 15.
Regarding the first-quarter estimated tax due date, the AICPA said:
We have received thousands of questions from tax practitioners, business organizations, governmental entities, and even some desperate taxpayers with nowhere else to turn about how to handle the payment of the 1st quarter 2021 estimate, which as of the time of this statement, is due April 15. Additionally, tax practitioners have sought clarification on the treatment of applying overpayments to the 1st quarter estimate from a Form 1040 if a payment is made with the federal extension, Form 4868, that might be filed by May 17. This has long been a standard practice and is helpful when taxpayers and their CPAs do not have sufficient information or time to prepare and file a complete and accurate return and corresponding quarterly payment amount. The issue in question is whether payments made with the extension on May 17 will be counted as timely when applied back. There is no conclusive guidance available from the IRS on how to handle this issue.
While not ideal, our recommended course of action to ensure that the 1st quarter 2021 estimate is credited to April 15 is to pay the estimate on a Form 1040-ES or make an online payment directed to 2021 on or before April 15. Given that we are not certain that a payment with a Form 4868, even if paid by April 15, will be credited by the IRS as paid by April 15, this recommendation is the most conservative approach.
Unfortunately, a clear answer does not exist, and opinions are mixed. However, we were able to gather information on best practices. While we cannot advise on an authoritative solution, we hope that our small firm members and those without a large network will have access to options to create their own process or receive validation that they are not alone in their chosen approach.
In some cases, CPAs have indicated to us that if the amount of the estimated tax payment is “immaterial,” they are including the payment with an extension at May 17 — not making an April 15 estimated payment — and informing their clients of the potential for additional calculated interest for one month. Others are planning to file extensions including a 1st quarter payment at April 15.
Gift tax returns
Regarding the Form 709 due date, the AICPA said:
2020 Form 709 gift tax returns or extensions are due by April 15, 2021 (for taxpayers not in declared disaster areas). IRS has indicated on its website that “Filing Form 4868 or Form 2350 after April 15, 2021 ... will not extend the due date for filing your 2020 federal gift tax return — it only will extend the due date for filing your 2020 income tax return.”
One option is to file the Form 4868 to extend both the Form 1040 and the Form 709 with a reasonable estimate by April 15, even though the Form 4868 for extending individuals is not due until May 17 this year.
The second option is to file Form 8892 by April 15 to extend gift tax returns. This option should be used when a reasonable estimate by April 15 is not possible. We note that there is a checkbox on Form 8892 that indicates “If you are applying for an automatic 6-month extension of time to file Form 709 but are not applying for an extension of time to file your individual income tax return, check here.” If the taxpayer is planning to file the Form 1040 or extend the individual return after April 15 and by May 17 (for taxpayers not in declared disaster areas), some firms are writing “See Attachment” on the line and then on the attachment, writing “Taxpayer will not file for an extension of taxpayer’s income tax return by the due date of the taxpayer’s gift tax return.”
Finally, the AICPA cautioned practitioners that, “Despite our efforts to share our concerns on these issues with the IRS, there may still be unanswered questions into next week.”
— Alistair M. Nevius, J.D., (Alistair.Nevius@aicpa-cima.com) is the JofA’s editor-in-chief, tax.