Businesses that won’t be able to meet Monday’s tax filing deadline because of the Covid-19 outbreak should request an extension if they haven’t done so already, according to tax professionals.
Many were hoping the IRS and Treasury Department would have already issued guidance extending that due date for partnerships and S corporations to file their returns, especially after President Donald Trump declared a national emergency Friday that would give them the authority to do so.
The American Institute of CPAs in a statement Monday said it has urged the IRS and Treasury to provide relief from the federal partnership filing deadline as well as the upcoming April 15 filing deadline for individuals and C corporations.
“They have not confirmed anything but have indicated that they are working hard on granting tax filing and payment relief to taxpayers in light of the uncertainty and challenges caused by the spread of the Coronavirus (COVID-19) pandemic,” said Edward Karl, AICPA’s vice president of taxation, adding that he is hopeful relief is coming.
A Treasury spokesperson said Monday that a number of things are under consideration, and “the situation is fluid.”
California and Connecticut have both extended deadlines for certain business returns in recent days.
Even though federal relief is expected, businesses shouldn’t base their decisions on the assumption that it’s definitely coming.
“It cannot be relied on,” said Cindy Hockenberry, director of tax research and government relations at the National Association of Tax Professionals.
PwC has been talking to tax policy officials, who want to know what accountants are hearing from their clients, PwC Chairman Tim Ryan said Monday.
Extension an Option
Businesses already have some options, despite the lack of guidance from the government. Those that anticipate they won’t be able to meet the Monday deadline can request an automatic six-month filing extension by filling out Form 7004, Hockenberry said.
“The kicker is that you still have to have your tax paid by the deadline,” she said.
It might not be the biggest deal for partnerships and S corporations, which are pass-through businesses, meaning they’re taxed at the individual partner or shareholder level and typically won’t owe any tax at the entity level. So for them, an extension of the April 15 deadline may be just as, if not more, important, she said.
Debbie Fields, partner-in-charge of the passthroughs group in the Washington National Tax practice of KPMG LLP, said even in a normal filing year she encourages partnership clients to automatically extend their filing deadline because there are a range of benefits that come from doing that.
“But this year has particular significance,” she said.
The IRS has said that it would be “very lenient and receptive” to reasonable-cause exceptions for late filing for S corporations and partnerships that have returns due Monday, Hockenberry said.
Under the reasonable-cause exception, the IRS will grant penalty relief in situations where taxpayers have a sound reason for failing to file a tax return, make a deposit, or pay tax when due, according to its website.
Leniency would seem the right approach given the circumstances, said David Kirk, partner in the EY Private Client Services practice.
“We are aware that the IRS knows there is this major deadline,” he said in an emailed statement.
“We expect that any guidance coming out that might affect this deadline would cause the IRS to take a lenient approach in accepting ‘reasonable cause’ statements for abatement of penalties with respect to late file returns,” he said.
“Sound reasons” for penalty relief listed on the IRS website include: fires, casualties, natural disasters or other disturbances; an inability to obtain records; death, serious illness, incapacitation, or the unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family; and any other reason that shows the taxpayer made every effort to meet his or her tax obligations but was still unable to do so.
“Clearly, this pandemic is reasonable cause,” Hockenberry said.
It would still be better for taxpayers if the IRS and Treasury outright waived penalties and interest for partnerships and S corporations that file or pay their taxes late, Fields said, noting the extra work and expenses taxpayers have to incur to get the government to grant relief under the reasonable-cause exception.
Absent a blanket waiver, people will be forced to spend time and money proving that they qualify for the exception, she said.
—With assistance from Amanda Iacone.