Will states be able to extend their tax filing seasons?

An AICPA expert details some of the factors that could affect changes to filing dates.
By George Spencer

While many state taxpayers are hoping for more time to file their returns, budget shortfalls in some states may prevent extensions beyond June 30 this year even if the IRS pushes back the federal deadline as it did last year, according to Eileen Sherr, CPA, CGMA, M.T., director–Tax Policy & Advocacy at the AICPA.

Last year, 41 states that have a personal income tax postponed their April 15 filing and payment deadlines due to the fallout from the pandemic.

“This year may be different,” Sherr said. “A lot of states are doing better than they expected, but COVID has hit some states worse than others. They aren’t in as good a revenue situation. Because most states have balanced budget laws, they will want to see tax revenue in this fiscal year, which for most states ends June 30. Depending on how far out the IRS pushes the April 15 date, some states may not be able to follow that.”          

Discussion of a possible extension is being driven by the continuing challenges of the pandemic.

“With the pandemic, because of social distancing and other restrictions, people haven’t been able to meet [with their tax return preparers], especially some elderly people who are less adept with electronic means,” she said.

An additional issue regarding state filing is that about half of all states require business entities to file returns on the same day federal returns are due. In those states, taxpayers and practitioners have needed more time after filing federal returns to prepare complete and accurate state returns, Sherr said.

If there is not extra time for filing state returns after the federal return is filed, many taxpayers will need to file state tax extensions, and if there is not extra time for state filing after federal filing at the extended due date, taxpayers may need to file state returns using estimates and then be forced to amend them, creating work for themselves and tax practitioners and more burdens on already stressed revenue departments. The need for more time to file the state return after the federal return is filed is especially vital for businesses operating in more than one state, according to Sherr, because a CPA firm must often do extra calculations for allocation and apportionment in states where the client does business. To assist state CPA societies in advocating for an additional month of state filing after federal filing, the AICPA has offered them model legislative language.

So far, regarding the federal April 15 deadline, the IRS has only granted a June 15 filing extension to Texas residents due to that state’s winter storm power outages.

On Feb. 23, the AICPA, citing the “severe challenges” caused by the pandemic, called on IRS Commissioner Charles Rettig to quickly announce clarity regarding moving the April 15 deadline this year. If the Service does decide to move the deadline, the Institute suggested a nationwide extension to June 15. Similarly, Democrats on the House Ways and Means Committee, which writes tax legislation, asked the IRS on Feb. 18 to quickly consider and announce an extension of the April 15 deadline. The IRS already faces staggering processing delays, according to a report by the U.S. Government Accountability Office issued Monday.

A possible deadline for an IRS announcement may be March 14. That is the date by which the $1.9 trillion American Rescue Plan Act of 2021, H.R. 1319, must become law or federal enhancements to states’ unemployment benefits will lapse. The House passed the package on Feb. 27, and it is now pending before the Senate. “Commissioner Rettig has said that if Congress passes more economic impact payments, the IRS may not be able to meet the April 15 deadline, if it has new responsibilities,” Sherr said.

The sooner the IRS announces an extension, the more time states will have to adjust their policies and deadlines. Last year, in some states, revenue departments issued new guidance, but in others, legislation had to be passed. “I was amazed at how quickly some states came out with their guidance, but other states need more time,” Sherr said. New Jersey last year took until the day before April 15 to pass its legislation that revised the due date.

The decision in 2020 by the IRS and many states to allow e-signatures on a temporary basis marked one positive development amid pandemic-related tax woes. “The AICPA had been wanting the IRS to allow that for years, and the pandemic situation helped make that happen,” Sherr said. The AICPA’s recent letter to the IRS asked it to extend permission to use e-signatures, a step she said the AICPA has also suggested that state societies advocate for states to adopt, and many states have provided e-signature pandemic guidance.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page or subscribe to our email alerts for breaking PPP news.

George Spencer is a freelance writer based in North Carolina. To comment on this article or to suggest an idea for another article, contact Chris Baysden, a JofA associate director, at Chris.Baysden@aicpa-cima.com.

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