As COVID-19 continues to spread around the globe, companies and individuals are facing a diverse and challenging set of issues. These issues span a number of different contexts including tax, and measures are being considered in the US and internationally to help taxpayers navigate the unprecedented situation. 

For US taxpayers, Treasury Secretary Steven Mnuchin announced that under an economic stimulus plan corporate taxpayers would be permitted to defer up to $10 million in tax payments for 90 days, and individual taxpayers, including small businesses and pass through entities, would be able to defer up to $1 million in tax payments for 90 days.  The extension only applies to payments of taxes, and under the plan, taxpayers are still required to file their returns or request an extension to file their returns by April 15.  Specifics of the relief proposals are yet to be announced. 

Businesses also are facing tax considerations related to a remote workforce, which have existed historically but not on this scale. As businesses implement policies allowing their employees to work from home, some businesses may pay some of their employees’ expenses relating to setting up a home office, acquiring childcare, or other personal and living expenses. There are questions as to how these payments are treated for US federal income tax purposes. Similarly, if employees are required to work remotely in another tax jurisdiction, due to government travel restrictions, there are taxable presence and permanent establishment considerations to be addressed. Providing guidance to employees to mitigate unanticipated tax risks is important.

Summarized below are some key considerations for US taxpayers related to the COVID-19 efforts. Eversheds Sutherland’s tax team is closely following international, US federal, state and local, and employee benefits developments as governments respond to the economic challenges resulting from COVID-19.

Extensions of time to file

President Trump issued an emergency declaration under the Stafford Act on March 13th. See Emergency Declaration Regarding Covid-19. The declaration specifically directs the Secretary “to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency.” The plan announced by Secretary Mnuchin appears to be in furtherance of this directive, and it is expected that guidance, when issued, will be available on the IRS’s COVID-19 tax relief website: https://www.irs.gov/coronavirus.

Initially, there was some uncertainty as to whether the President’s emergency declaration under the Stafford Act constituted a “disaster” for purposes of Section 7508A of the Code. That provision allows an extension of up to 1 year, as specified by the Secretary of the Treasury (the Secretary), with respect to numerous federal income tax deadlines if a “disaster” is declared at the federal level. These include due dates for filing federal income tax returns and payment of taxes, as well as deadlines for filing a Tax Court petition or claim for credit or refund. The Secretary also has the authority to extend the return filing deadlines under section 6081 even if a disaster is not declared.

It is anticipated that the Treasury plan will make clear whether the President’s declaration constitutes a “disaster” for purposes of Section 7508A. Under the Stafford Act, the President may declare either an “emergency” or a “major disaster.” In the past, the IRS has interpreted a “disaster” to include both a declaration of an emergency and a major disaster under the Stafford Act, see e.g., Rev. Rul. 2001-15 (in part, relating to the West Nile virus).

In addition to tax return filing deadlines, there are numerous other tax deadlines that may be extended if a disaster is declared. In each case, the Secretary must issue a notice or other release that specifies which deadlines are extended by a particular disaster. See Rev. Proc. 2018-58. 

For a discussion of filing extensions with respect to state and local taxes, see the forthcoming Eversheds Sutherland Legal Alert on that topic.

Employee expenses 

Another implication of the declaration of a disaster for purposes of Section 7508A is that payments of an employee’s unreimbursed personal expenses arising from a disaster may be excludable from the individual’s income and, if paid by an employer, would not be subject to payroll tax. This provision may allow employers to assist employees in addressing COVID-19 related personal expenses, without incurring a tax cost. 

Section 139 allows an individual to exclude from gross income, among other items, amounts paid to reimburse or pay reasonable “personal, family, living, or funeral expenses incurred as a result of a qualified disaster,” so long as the expense is not compensated by the individual’s insurance or otherwise. Although no regulations have been issued under section 139, the legislative history provides that individuals are not required to account for their expenses, given the circumstances, and that the exclusion will apply if the expenses are reasonably expected to be commensurate with the expenses incurred. This conclusion was echoed by the IRS in Rev. Rul. 2003-12, which focused on grants provided by a company to its employees in response to a flood. 

Employers that have or intend to pay their employee’s expenses incurred in working remotely should consider whether the payment may qualify as an ordinary and necessary business expense under section 162 or a working condition fringe benefit under section 132. For more information on this topic, see the forthcoming Eversheds Sutherland Legal Alert relating to employee benefits available in the event of a disaster. 

Remote work by employees

In some cases, COVID-19 travel restrictions and quarantines require employees to work outside the tax jurisdiction in which their employer is located. Ordinarily, there can be income and employment tax considerations related to the performance of work in a jurisdiction. Under international standards, a company generally is considered to have a taxable presence in any jurisdiction where it has a “fixed place of business.” There is limited guidance on whether temporary remote work in response to travel restrictions gives rise to a taxable presence or permanent establishment. In the absence of specific guidance, consideration may be given to updating current remote work policies to minimize the risk that the company, or its employees, are subject to tax in another jurisdiction as a result of remote work.  

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