Important Tax Updates – COVID-19 Edition

Greenberg Glusker LLP

Updated as of March 23, 2020 at 11:30 a.m.

On Friday, March 20, 2020, the IRS released updated guidance, confirming Secretary Mnuchin’s statements from earlier in the day that the April 15, 2020, federal income tax filing and payment deadlines have been extended to July 15, 2020. In addition, the guidance makes clear that (1) these extensions apply to all taxpayers, (2) the “cap” on the amount of the payment deferral in the prior IRS announcement has been removed and (3) the relief applies to a taxpayer’s 2019 income taxes as well as estimated income tax payments for the 2020 tax year that would have been due on April 15, 2020. The notice applies to federal income and self-employment taxes only, and does not affect the filing of returns and payment of other taxes, such as gift taxes. After the formal release of the IRS guidance, a number of States followed suit by extending filing and payment deadlines—which California had already done earlier in the week.

Updated as of March 20, 2020 at 10:00 a.m.

We hope that you, your family and loved ones are safe and well during this challenging time and wish you continued health as we all face the Coronavirus (COVID-19) pandemic and adjust to the impact it has had on our lives in such a short time.

Over the last week, various taxing authorities have issued guidance alleviating several of the annual upcoming deadlines and provided additional useful tax planning information. The guidance is changing almost daily, and we will continue to update you as more information becomes available.

Federal Income Taxes

On March 18, 2020, the IRS announced that payment of federal income taxes up to the “Applicable Postponed Payment Amount” (the “APPA”) can be deferred from April 15, 2020, until July 15, 2020, without interest or penalties applying. Interest, penalties and additions to tax will only begin to accrue on July 15, 2020. This morning, it was announced that the income tax filing deadline was also being extended until July 15, 2020.

  • The APPA is $10 million for a consolidated group and each C corporation not filing a consolidated return, and $1 million for everyone else – i.e., $1 million for married individuals filing jointly and $1 million for an individual.
  • The APPA applies to the aggregate amount of (a) payments of tax on self-employment income and income taxes due on 2019 income and earnings and (b) estimated payments of tax on self-employment income and income taxes due on 2020 income and earnings.
  • This payment extension does not affect any interest, penalties or additions to tax already assessed or for taxes due in excess of the APPA.

Separate from this extension related to COVID-19, the Internal Revenue Code permits a taxpayer to seek relief for failing to pay tax or estimated taxes (individuals only) due to reasonable cause.

Federal Gift and Generation-Skipping Transfer Taxes

At this time, the IRS has not extended any of the filing or payment deadlines for federal gift, estate or generation-skipping transfer taxes. Accordingly:

  • The requirement to file a return and pay federal gift tax for gifts made in 2019 remains April 15, 2020. A six-month extension to file is available, but payment remains due by April 15, 2020.
  • The requirement to file returns reporting generation-skipping transfers occurring in 2019 and pay federal generation-skipping transfer tax remains April 15, 2020.
  • The requirement to file an estate tax return and pay estate taxes on the nine-month anniversary of a decedent’s death remains in place. A six-month extension to file is available, but payment remains due by the nine-month anniversary of the decedent’s death.

California Income Taxes

On March 18, 2020, the California Franchise Tax Board (the “FTB”) announced an extension of time to file and pay until July 15, 2020, for all tax filings and payments for California taxpayers, including individuals and business entities (such as corporations, S-corporations, partnerships and LLCs) affected by the COVID-19 pandemic. This further extends the June 15 extension that had been granted on March 13.

  • Individuals, whose tax returns and estimated taxes are ordinarily due on April 15 have an extension until July 15 to file and pay their taxes.
  • Partnerships and LLCs taxed as partnerships, whose tax returns were due on March 15, have an extension to file and pay by July 15.

California Real Property Taxes

At this time, there has been no extension of the payment dates for California real property taxes.

  • The second installment of the 2019-20 property taxes (due February 1, 2020) is considered delinquent if payment is not received or postmarked by April 10, 2020.
  • Untimely payments result in a penalty equal to 10% of the delinquent taxes, with the penalties increasing if the delinquency is not paid by June 30, 2020.
  • In-person payments are currently not being accepted as a result of County building shutdowns. The following payment methods are available:
    • Payment by check postmarked on or before April 10, 2020.
    • Payment online by e-check on or before April 10, 2020.
    • Payment by using a credit/debit card online or by phone (a 2.25% service fee is also charged) on or before April 10, 2020.
  • Online e-check payments cannot be pre-scheduled in advance. Checks are cashed when received, and credit/debit payments are immediate.
  • In Los Angeles County, property owners unable to pay their property taxes on time for reasons related to COVID-19 may submit a request for penalty cancellation online beginning April 11, 2020.
  • Click here for a full list of Tax Collectors by County and links to their payment pages.

Interest Rates

On March 18, 2020, the United States Treasury Department released the minimum interest rates for various transactions, including certain transfer tax techniques, completed in April 2020. While these rates impact a variety of transactions, they are especially important for intra-family loans, whether existing or new, financed intra-family sale transactions, including those involving irrevocable grantor trusts, grantor retained annuity trusts and charitable lead trusts.

   

Minimum Required Interest

 

Discount Rate

3-year note

3-9 year note

9+ year note

April

1.20%

0.91%

0.99%

1.43%

March

1.80%

1.49%

1.52%

1.92%

February

2.20%

1.58%

1.74%

2.14%

The transfer tax benefits offered by the lower rates will be enhanced if property with a currently depressed value is made a part of the transaction. While the lower rates are beneficial for the transactions noted above, the lower rates adversely affect other techniques, such as qualified personal residence trusts and charitable remainder trusts.

In order to utilize the April rates, the transaction must be completed during the month of April 2020. As a result, clients may wish to consider an April closing date for pending gift, intra-family loan and intra-family sale transactions to take advantage of the recent rate decrease. It is possible that the Treasury Department interest rates for May 2020 will be the same or lower than the April rates. Because the May rates should be published at least one week before the end of April, the completion of any transaction planned or developed for April can often easily be deferred until May, if it is advantageous to do so.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Greenberg Glusker LLP | Attorney Advertising

Written by:

Greenberg Glusker LLP
Contact
more
less

Greenberg Glusker LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.