As part of the government’s response to the coronavirus’s spread and economic fallout, the IRS postponed the deadline for income tax return filings and payments that would have been due on April 15, 2020, for 90 days, to July 15. In this episode, Ed Karl, CPA, the AICPA’s vice president–Tax Policy & Advocacy, outlines how the delay came about — and what it means for CPA tax practitioners and their clients.
Editor’s note: A day after this podcast was recorded, the IRS issued Notice 2020-20, amplifying Notice 2020-18 to provide relief to persons with a federal gift tax or generation-skipping transfer (GST) tax payment due, or a requirement to file Form 709, United States Gift and Generation-Skipping Transfer Tax Return, on April 15, 2020, by automatically postponing the due date of the return and payments of gift or GST tax to July 15, 2020. Read more at "Gift and GST returns added to postponed tax and filing deadlines," JofA, March 27, 2020.
What you’ll learn from this episode:
- How the timeline of advocacy to, and decision-making by, the IRS unfolded through March.
- How the AICPA and others sought to persuade the IRS to provide the extra time and relayed practitioners’ concerns and questions about how to implement it.
- What questions and concerns remain and how the AICPA is pushing for further filing and payment relief.
Play the episode below or read the edited transcript:
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.
To comment on this podcast or to suggest an idea for another podcast, contact Paul Bonner, a JofA senior editor, at Paul.Bonner@aicpa-cima.com
Paul Bonner: Hello, and welcome to the Journal of Accountancy podcasts. I’m Paul Bonner, and in this episode, we’ll hear from Ed Karl, CPA, who is the AICPA’s vice president–Tax Policy & Advocacy in Washington. Ed will describe for us the groundswell of advocacy by CPAs and others that led to the IRS’s postponement from April 15 to July 15, first of income tax payments and then of income tax return filings as well, as the nation contends against the effects of the COVID-19 pandemic. And he’ll outline some of the guidance that CPAs and their clients have received for this historic development and further administrative relief that the AICPA is advocating for.
Thank you, Ed, for joining us on the JofA podcast. I wanted to ask you about a very important matter for filing 2019 taxes that still is going on as we speak here, and that is the extension of the filing date to July 15. How did that come about?
Ed Karl: That’s an important question, and there’s still a lot of dialogue going on around filing season and what IRS has done and what, we feel, additional steps it needs to take, but let’s step back a little.
Around three weeks or so ago, around March 1, we started looking ahead in filing season and getting concerned as we saw the escalation of coronavirus around the world and then saw the initial stages in our country, in Washington state and California, and then just starting in New York — over the last several weeks, it really has started to escalate, and New York really is now the hot spot.
So around three weeks ago, we formed an internal working group, a task force to start considering what needed to be done for filing season. We started reaching out to IRS and the Treasury Department to have conversations, but as the next week or so started to move by, around the first week of March, we started to hear from members in addition to the concerns that we started to anticipate.
As I just mentioned, they were members from Washington state and California and then, in growing intensity, from New York, particularly the Manhattan area. And they were raising concerns about their ability to function effectively — I think that even at this point, to function at all — a lot of our members.
And so it really became crystal clear to us that something had to be done with not only the April 15 deadlines that people were starting to talk about but also the upcoming March 16 deadline for partnerships and S corporations.
Bonner: Right. Now, the March 16 deadlines have not been extended, have they?
Karl: They were never extended. We did have conversations with the Treasury Department about that. They had indicated that they had done some outreach themselves to CPAs and that there was a feeling that March 16 was not quite the concern. We did not agree with that, and we believe maybe the disconnect between the two of us was, possibly, that we were hearing more from hotspots and they were not speaking to CPAs in hotspots. This was about the beginning of March already. Again, we were trying to anticipate what would happen in the next week or so as we reached March 16.
They were also indicating that a lot of partnership returns are extended anyway. I think at the end of the day, we were not able to get them to extend March 16 deadline but that reasonable-cause abatement for any penalties for CPAs, or taxpayers, who were not able to file extensions would be handled on that type of basis. So, as we go forward and taxpayers and CPAs realize that there were returns that were late, we’ll put information out about how they could possibly get those penalties abated on a case-by-case basis using reasonable cause.
Bonner: Now, for April 15, I think one of the impetuses, besides the AICPA’s input, was a Senate bill to extend the filing date and bipartisan outreach to Treasury. The AICPA joined with quite a number of parties, didn’t it?
Karl: Yes, we did, and we initiated those conversations because we were getting concerned that we kept hearing statements from Secretary [Steven] Mnuchin that there would be some kind of filing relief, but there were no details, as we found out on March 18, when they released Notice 2020-17, that that filing relief was not for the filing of returns but only for penalties themselves, so payment relief but not filing relief.
That caused a lot of concern within our membership, a lot of members who were not anticipating being able to file, with staff being ill, with working inefficiently out of the office, with clients being ill, with lockdowns, shelter-in-place growing across the country.
With that notice coming out and only referring to payment relief, we started the conversations going on the Hill about the possibility of legislating the filing extensions. That was with S. 3535 that was introduced by Sen. John Thune from South Dakota, and we greatly appreciate his taking the initiative to do that.
It was really, I believe — we all believe — it was a critical step in getting the Treasury Department to understand the enormity of the situation in the filing communities. I think by the end of the day when that bill was introduced, there were already 32 co-sponsors, a bipartisan list of senators from both sides of the aisle.
That was an important step in getting IRS and Treasury to understand that in addition to the payment relief, they had to have filing relief.
Bonner: Now we had the Notice 2020-17, and the ball had been rolling. And then Secretary Mnuchin came out with the announcement that filing would also be postponed, but there were no details there for several days. That was kind of a rocky time, I believe, with practitioners wondering exactly how this would work in a number of contexts. What happened in your office?
Karl: When they originally issued [Notice] 2020-17, which was the payment relief, and the question as to how that works without filing relief, as you mentioned, then a couple of days later, they rescinded [Notice 2020]-17 and replaced it with Notice 2020-18, which also added filing relief. But that filing relief, the language of that notice, was very narrow. It talked about returns and payments that were due April 15, when we knew from our membership that there were a lot of other issues. Probably starting the beginning of March, when the enormity of the coronavirus situation started to escalate, there were numerous examples, but one common concern from our membership was the exempt-organizations return, the Form 990. That’s due for calendar-year taxpayers, or a calendar-year entity, May 15.
Our members started asking, what about the Form 990, is that extended? We had questions about the Form 5500, which is the report for employee benefit plans. The majority of employee benefit plans are calendar year, and the 5500 is due for them July 31. That doesn’t seem to be an issue right now, but there are a number of August and September fiscal-year-end plans. And those reports are due March 31 and April 30; those are right smack in the middle of a period right now where there is a lot of uncertainty, a lot of concern, and a lot of people, including the AICPA, believe that those should also be extended at least till July 15.
We’ve been having those conversations about all the open issues. The IRS did release on March 24 a Q&A document. Those are Q&As in response to Notice 2020-18, but as I mentioned a moment ago, that [Notice] 2020-18 is somewhat narrow and focused on April 15, the Q&As are similarly written, so that, really, those Q&As hold to the four walls of the notice itself.
We are in the process today, March 26, of releasing a letter to IRS and Treasury asking for additional relief, and that relief would be for any returns due between March 3 and July 15 would get the extension. If you go back and look at any notice that’s released for any kind of a disaster, the most recent notice was for the tornadoes that took place in Nashville about a month or so ago. They give a period of time for which they provide the relief, and that’s what we’re asking for. Because that’s what’s impacting CPAs, other practitioners, taxpayers; they are unable to, in good faith and every attempt that they want to make, they’re unable to comply. And the relief is really necessary.
Bonner: There are payroll and excise tax returns, there are estate and gift tax returns; people have asked about those, too.
Karl: Exactly, all of those would be contemplated in what we’re asking for, filing and payment relief for any kind of a return and any kind of a tax, any kind of taxpayer between that period. As Treasury and IRS understood with relieving the April 15 pressure point, there’s a pressure point even before then, for other types of payments and taxes. They really have got to be dealt with.
Bonner: The FAQs that they did release, I think, have answered a lot of the questions that people have. Are there any outstanding issues that would be covered by the Notice 2020-18 that the FAQs were really silent about?
Karl: There were other questions; they answered a couple of them. For example, the IRA [contribution] by a taxpayer is due by the original return date; you can’t extend the payment of the IRA period, but the IRS postponed the original due date with Notice 2020-18, so they indicated in that notice that the IRA payment could be made by July 15. Similarly, the Sec. 965 international transition tax that’s paid over several years, that payment would be due for [Form] 1120s, for corporate returns, by April 15, so they similarly indicated that that would be postponed. But there are a lot of other questions for which the IRS is likely to have to issue another notice. Again, the way that notice was written, it’s narrowly focused on April 15, but there are other returns due around April 15 that taxpayers and their advisers would have an impossible situation in complying with.
Bonner: I imagine they’ll also have to issue a notice considering several forms of relief in the [Coronavirus Aid, Relief and Economic Security (CARES) Act, H.R. 748,] which I think might be passing today, and it has some other forms of relief that will also require the IRS to issue notices, I think.
Karl: And we know the Chief Counsel’s Office is already starting to work on guidance, so it’s not just the CARES Act but there was also the Families First Coronavirus Response Act [P.L. 116-127]. That was passed March 18. That has several tax-related provisions regarding credits, sick leave, and emergency paid leave, and so with regard to the tax components of that act, it will need guidance, and similarly, as you just mentioned, with the CARES Act that we hope the president will be signing shortly. That will also have some tax components that will need guidance. We’ve already started hearing from members asking questions about these types of provisions, so that guidance will have to come out pretty quickly.
Bonner: The work that you’re doing there is certainly important to all our members, I know, and taxpayers and their advisers and practitioners everywhere.
Karl: I just want to mention one other thing. While we are calling on IRS and Treasury to do more, we do appreciate the enormity of what they have to deal with. The Treasury Department is trying to deal with the hit that the economy is taking and ways to implement the policy that’s legislated by Congress and how they have to deal with it, so there are a huge number of steps that they have to take.
We understand that one of the reasons they didn’t offer the filing relief initially is that they were hoping to get refund returns filed right away so that taxpayers would get their refunds and put that back into circulation to help the economy, and we certainly understand that. And we do encourage CPAs, where it’s possible and safe to do so, that they should file refund returns for their clients for that purpose. We are hoping that that can get done and are endorsing those steps.
Bonner: Right, I suppose it all depends on any technical difficulties just in having people come in to sign returns and those kinds of things that might be more difficult in this period of less travel and people working from home and staying home.
Karl: Right, exactly. One of the things we’ve been looking into is if there are ways for IRS to provide some kind of relief for the electronic signing requirements, whether they can be done or not. I know one of the concerns IRS has with that is identity theft, which is a huge problem, so again, we’re trying to encourage all steps that are possible and safe under the existing environment. So, we’ll continue to be in touch with IRS about all of these issues and steps.
Bonner: Well, thank you so much, Ed, for your sharing these details of your work, and thank you for carrying on this important work.
Karl: Thank you, Paul.
Bonner: And thank you for joining us on the JofA podcast.