Tax filing postponement doesn't go far enough, AICPA says

By Paul Bonner

The AICPA welcomed the IRS’s postponement of the April 15 income tax filing and payment deadline to May 17 but said the measure falls far short of needed taxpayer relief.

After IRS Commissioner Charles Rettig, in a congressional hearing Thursday, sought to justify the Service’s limited postponement, AICPA President and CEO Barry Melancon pushed back, arguing the limitation hurts small business owners and calling upon CPAs and others to ask their U.S. senators and representatives to intervene.

The postponement, announced last Wednesday, applies only to individual federal income tax returns and tax payments otherwise due April 15. It does not apply to first-quarter individual estimated tax payments, due April 15. Many other taxpayers’ tax year 2020 tax returns and payments also remain due April 15, including those from trusts and estates and C corporations.

The AICPA in response reiterated its requests from Feb. 23 and again on March 2 for a month longer postponement, to June 15, including all returns otherwise due April 15, and called on the IRS to also postpone the April 15 due date for paying estimated taxes for the first quarter of 2021.

In a hearing Thursday of the Oversight Subcommittee of the House Ways & Means Committee, IRS Commissioner Charles Rettig sought to justify the limited time and scope of the postponement, saying it was intended to accommodate the needs of the “most vulnerable individuals.”

The comment was in response to a question from Rep. Brad Wenstrup, R-Ohio, who noted CPAs’ request for a June 15 postponement and asked whether postponements are “going to be a pattern” in future years.

“This cannot be a pattern,” Rettig said. “Last year was an anomaly; we were shut down.”

In 2020, the IRS postponed the due date for most returns due on or after April 1, 2020, generally until July 15 that year, and postponed both the first- and second-quarter 2020 estimated income tax payment due dates to July 15, 2020, as well (Notices 2020-18, 2020-20, and 2020-23).

This year, despite ongoing difficulties stemming from the COVID-19 pandemic, the IRS is in a different situation, Rettig said.

“Operationally, this was not called on by the Internal Revenue Service,” he said of the May 17 postponement. “It was an accommodation for the most vulnerable individuals. … It’s to try to give the individuals who might be struggling to get some of their information a little bit of breathing room if they’re not otherwise comfortable doing the automatic extension till Oct. 15.”

Rep. Bradley Scott Schneider, D-Ill., asked Rettig why the estimated tax payments were not also postponed.

“There’s a large contingent of wealthy individuals in this country who do not make their estimated payments and who essentially take the money they should be paying in quarterly estimated payments to the government and take the arbitrage, invest it, and we’re not going to give them a break of interest and penalties to do so,” Rettig replied.

Rep. Lloyd Smucker, R-Pa., asked Rettig if the IRS would allow a postponement of estimated tax payments for small business owners.

Rettig answered with a flat “no,” but said he identifies with small business owners, noting, as he has previously, he grew up working in his family’s small business.

“This issue is, where do we draw a line, and that line will quickly run to wealthy individuals who game the system,” Rettig said. He also invited small business owners and others to “talk to the IRS” to try to resolve any resulting penalties and interest, with the latter being assessed at a currently minuscule rate.

Later Thursday, Melancon nonetheless called the IRS’s omission of an estimated tax postponement “deeply concerning” in light of its use by millions of small business owners and again reiterated a call to postpone them and other filings due April 15.

“The challenges facing businesses today are significant,” Melancon said. “They have suffered greatly as a result of the pandemic and are fighting every day to keep their doors open and their staff employed.”

In a letter to AICPA members Friday morning, Melancon asked them and their small business clients to write their members of Congress to ask the IRS to move all tax payment and filing deadlines to June 15.

Failing to also postpone the estimated tax deadline effectively cancels out any benefit taxpayers might otherwise obtain from the return filing postponement, said Edward Karl, CPA, CGMA, AICPA vice president–Taxation. Taxpayers generally cannot know whether they owe estimated tax for a current year without knowing their prior-year tax liability or calculate the amount of estimated tax without knowing whether they overpaid tax for the prior year.

The AICPA has been and remains sympathetic to the IRS’s administrative difficulties throughout the pandemic, Karl said. But CPA tax practitioners also feel the pandemic’s impact on their own operations and the plight of their clients, who represent a wide range of socioeconomic profiles. Accordingly, he said, relief should be broadly applicable.

“We understand that the IRS is backed up because of the pandemic, but so is the whole system, and it affects all taxpayers,” Karl said. “We’re all vulnerable from the pandemic’s perspective.”

Jan F. Lewis, CPA, tax partner with Haddox Reid Eubank Betts PLLC in Jackson, Miss., and a member of the AICPA Tax Executive Committee, said that while the IRS has been struggling against formidable odds, its current position seems out of touch with taxpayers and CPAs regarding their difficulties, which include being unable at times to communicate in a timely fashion with the IRS by phone and mail.

“With all due respect to the IRS and the workers there who have the difficult task of administering so many COVID relief provisions passed by Congress, the commissioner seems to be unaware of many of the problems that taxpayers and their advisers have faced,” Lewis said.

She called Rettig’s argument regarding estimated tax evasion by the wealthy “an overreaching assumption that simply isn’t true in my practice.” And his invitation to contact the IRS regarding an honest inability to meet the estimated-tax deadline she called “laughable.”

“He clearly doesn’t know how difficult this can be,” Lewis said.

Other reasons the AICPA has pointed to for postponing the income tax filing deadline to June 15 include:

  • The IRS did not begin accepting e-filed returns this year until Feb. 12, nearly three weeks later than normal.
  • Major provisions retroactive to 2020 returns were enacted by the American Rescue Plan Act, P.L. 117-2, on March 11, for which the IRS has yet to issue formal guidance. Chiefly, these are an exclusion of up to $10,200 per taxpayer or spouse of unemployment compensation benefit income and forgiveness of overpayments of advance premium tax credits. Rettig told the House subcommittee Thursday that he hopes the IRS will soon announce that taxpayers affected by the unemployment compensation exclusion will not have to file amended returns reflecting the exclusion and that the IRS will be able to automatically calculate it and issue any resulting additional refund.

Another reason taxpayers may have to complete their income tax returns by April 15 (or other date before May 17) is that states may not also postpone their due dates for state income tax returns, as the IRS acknowledged in its announcement. Most states with an income tax base state taxable income on federal taxable income or a calculation starting with federal adjusted gross income.

Paul Bonner (Paul.Bonner@aicpa-cima.com) is a JofA senior editor.

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