Coronavirus Tax Relief for Individuals

On March 13, 2020, President Donald Trump declared a national emergency pursuant to because of the rapidly spreading coronavirus.  The President instructed the Secretary of the Treasury to provide relief from tax deadlines to Americans, all of whom have been adversely affected by the COVID-19 emergency.  In response, the Department of the Treasury and the Internal Revenue Service issued several notices which, among other things, postpone this year’s tax-filing and payment deadlines from April 15, 2020 to July 15, 2020.  The IRS also announced key delays to enforcement actions.  Here’s what to know about these historic changes. 

You do not have to file a special form to use the July 15th deadline.  If you file a return or an automatic extension request and pay your tax due by July 15th, no interest or penalties will be due.  If you need more time to complete tax paperwork and file your 2019 return, you can ask for an automatic extension of the time to file (but not pay) by filing Form 4868 by July 15th.  Then the deadline remains October 15, 2020, as it would have been without the three-month filing and payment delay.  Of course, if you are expecting a refund, you should not delay filing.  The IRS is processing refunds now.

The due date for estate and gift tax returns is also extended to July 15, 2020.  The deadline to contribute to an Individual Retirement Account, Roth IRA, and Health Savings Account are also delayed to July 15.  If you owe the 10% penalty on a withdrawal you took from a retirement account last year, the deadline to pay it is postponed as well.

For seniors (i.e. age 72, or 70½ before 2020), the required minimum distributions (RMDs) are suspended for 2020.  Additionally, the waiver provision covers the first RMD, which individuals may have delayed from 2019 until April 1, 2020.  Seniors now have until April 1 of the following year (2021) after reaching the required RMD age to take the first RMD payment.  This deadline applies to the RMD only for the first year.  Every year thereafter, seniors have to take the distributions by December 31st.

If you are younger than 59½ and make a withdrawal from a retirement account, you normally are subject to a 10 percent early withdrawal penalty on top of the income tax owed on your withdrawal.  The new relief provisions waive the 10 percent penalty for IRAs and defined contribution plans for participants experiencing financial hardship caused by the coronavirus.  Withdrawals up to $100,000 made on or after January 1st would not incur the penalty.  To ease the tax burden, if you pull money from your retirement account, you have up to three years to pay taxes on the withdrawals.  You can repay all or a portion of the distribution within three years and the repayments will not be counted toward the annual contribution limits.

If you make estimated tax payments, your first quarter payment is now due on July 15, 2020.  As of now, the second-quarter payment is still due on June 15, 2020.  However, this could change so watch for further announcements.

The IRS also announced a sweeping series of steps to assist taxpayers by providing relief on a variety of enforcement actions.  These new changes include issues ranging from postponing certain payments related to Installment Agreements and Offers in Compromise to limiting certain collection and enforcement actions.  The IRS will be temporarily modifying these activities as soon as possible, and they will initially run through July 15th.  During this period, to the maximum extent possible, the IRS will avoid in-person contacts.  However, the IRS will continue to take steps where necessary to protect all applicable statues of limitations.

For taxpayers under an existing Installment Agreement, payments due between April 1 and July 15, 2020 are suspended.  Furthermore, the IRS will not default any Installment Agreements during this period.  By law, interest will continue to accrue on any unpaid balances.

With respect to Offers in Compromise (OIC), the IRS will allow taxpayers until July 15th to provide requested additional information to support a pending OIC.  In addition, the IRS will not close any pending OIC request before July 15, 2020, without the taxpayer’s consent.  Taxpayers have the option of suspending all payments on accepted OICs until July 15, although interest will continue to accrue on any unpaid balances.  Finally, the IRS will not default an OIC for those taxpayers who are delinquent on filing their tax return for tax year 2018.  However, taxpayers should file any delinquent 2018 return (and their 2019 return) on or before July 15, 2020.

Liens and levies (including any seizures of a personal residence) initiated by field revenue officers will be suspended through July 15th.  However, field revenue officers will continue to pursue high-income non-filers and perform other similar activities where warranted.

During this period, the IRS will generally not start new field, office and correspondence examinations.  They will continue to work refund claims where possible, without in-person contact.  However, the IRS may start new examinations where deemed necessary to protect the government’s interest in preserving the applicable statute of limitations.

In-person meetings regarding current field, office and correspondence examinations will be suspended.  Even though IRS examiners will not hold in-person meetings, they will continue their examinations remotely, where possible.  To facilitate the progress of open examinations, taxpayers are encouraged to respond to any request for information they already have received—or may receive—on all examination activity during this period if they are able to do so.

Appeals employees will continue to work their cases.  Although Appeals is not currently holding in-person conferences with taxpayers, conferences may be held over the telephone or by videoconference.  Taxpayers are encouraged to promptly respond to any outstanding requests for information Appeals cases.

In instances where statutes expirations might be jeopardized during this period, taxpayers are encouraged to cooperate in extending such statutes.  Otherwise, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the government’s interests in preserving such statutes.  Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue these actions until at least July 15, 2020.

As for state-tax deadlines, the Colorado Department of Revenue also adopted emergency rules to change the due date for certain income tax payments to July 15, 2020.  The rules and the Governor’s executive order are specific to income tax payments that would otherwise have been due April 15, 2020, for tax year 2019.  The rules also apply to any estimated income tax payment that would otherwise be due between April 15, 2020 and June 15, 2020.  No penalty or interest will be due for any payment covered by these rules that is made by July 15, 2020. 

Additionally, under existing income tax rules, all income tax returns that were required to be filed by April 15, 2020 are granted an automatic six-month extension, and are due on or before October 15, 2020.  The rules do not apply to other returns, filings, or payments required to be made.  No extension has been granted for any payments due pursuant to a notice of deficiency, notice of final determination, demand for payment, installment agreement, closing agreement, or other agreement or requirement to pay.

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