As reported in our recent Client Alert, the IRS continued its series of tax relief announcements related to the COVID-19 emergency when it issued Notice 2020-23. This alert provides more detailed guidance on IRS Notice 2020‑23 with respect to filing and payment deadlines, IRS audits and a host of other time-sensitive actions, including requirements for like-kind exchanges and Opportunity Zones.
Extended Return Filing and Payment Deadlines
As noted in our last Client Alert, the new IRS guidance generally moves all IRS return filing and payment deadlines to July 15, 2020 for due dates that fall within the period beginning April 1, 2020 and ending July 14, 2020. Although our earlier Client Alert, Many (But Not All) Filing and Tax Payment Deadlines Postponed in the Wake of the Coronavirus, itemized the returns extended in a useful chart, you are urged to consult Notice 2020-23 for the most recent and comprehensive list of tax returns and forms subject to filing and payment deadline relief.
The relief under Notice 2020-23 applies not just to the filing of the enumerated tax returns, but also all schedules, returns and other forms that are filed as attachments to those returns or are required to be filed by the same due date, including, for example, Schedule H and Schedule SE, as well as Forms 3520, 5471, 5472, 8621, 8858, 8865 and 8938.
The Notice clarifies that no extension, letter or call is required in order to benefit from the new July 15, 2020 deadline, and no interest, penalties or additions to tax for failure to file or make a payment are imposed for filings and payments made earlier than July 16, 2020. Taxpayers who need additional time to file beyond July 15, 2020 will need to file an appropriate extension form by that date to obtain a valid extension, but the extension date will not stretch beyond the original statutory or regulatory extension date. For example, a Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, may be filed by July 15, 2020, to extend the time to file an individual income tax return, but that extension will only be to October 15, 2020.
Extended Deadline for Specified Time-Sensitive Actions
In addition to the return filing and payment relief, Notice 2020-23 extends the deadline to July 15, 2020 with respect to “Specified Time-Sensitive Actions” that are due to be performed on or after April 1, 2020 and before July 15, 2020. Specified Time-Sensitive Actions include those listed in either Treasury Regulation Section 301.7508A-1(c)(1)(iv) - (vi) or in Revenue Procedure 2018-58. Revenue Procedure 2018-58 identifies a lengthy and detailed set of time-sensitive actions, including, for example, actions required to implement a like-kind exchange, such as the 45-day identification requirement and the 180-day exchange period requirement. This relief also applies to the time for filing petitions with the Tax Court.
The IRS Gets Extensions Too
Notice 2020-23 also provides the IRS with its own deadline relief with respect to audits, appeals or certain other procedures that require government action. This includes actions with respect to:
- persons who are currently under examination (including an investigation to determine liability for an assessable penalty involving various failures to file, excessive claims and the like);
- persons whose cases are with the Independent Office of Appeals; and
- persons who, during the period beginning on or after April 6, 2020 and ending before July 15, 2020, make a filing relating to certain amended returns or submit payments with respect to a tax for which the time for assessment would otherwise expire during this period.
In such matters, the IRS is allowed a 30-day postponement for “Time-Sensitive IRS Actions,” as enumerated in Treasury Regulation Section 301.7508A-1(c)(2), if the last date for performance of the action is on or after April 6, 2020 and before July 15, 2020.
Spotlight on Opportunity Zone Extensions
In the area of Opportunity Zones (Code Section 1400Z-2), Notice 2020-23 provides one, and only one, specific extension of time and that is with respect to the investment of eligible “gain” within the so-called “180-day period” under Code Section 1400Z-2(a)(1)(A). Basically, eligible gain must be invested within 180 days of the sale of the related property that generated such gain in order to qualify for the applicable tax benefits. In the case of any 180-day period ending within the period beginning April 1, 2020 through July 14, 2020, the outside date for investing such gain is now extended to July 15.
Comments on OZ Act Relief: While Notice 2020-23 provides substantial relief for like-kind exchanges, it provides only limited relief for transactions involving Code Section 1400Z-2. The Notice only extends the time during which to satisfy the 180-day period from April 1 to July 15, and thus, as a practical matter, only provides limited relief for gain recognized between October 4, 2019 and January 17, 2020. Any relief is welcome, of course, but it is hardly a game changer for taxpayers active in transactions that seek the tax benefits under the OZ Act.
Taxpayers are reminded that the final Treasury Regulations under Code Section 1400Z-2 provide for two “automatic” extensions of time in the event of a “Federally declared disaster” within the meaning of Code Section 165(i)(5)(A). The two extensions, if they are applicable, would add, respectively, 24 months to the working capital safe harbor (extending it to 55 months) and 12 months (extending it to 24 months) in which to reinvest gain upon a sale of Qualified Opportunity Zone Property by a Qualified Opportunity Fund before the sale proceeds are taken into account as non-eligible property for purposes of the “90-percent investment standard” and the related penalties. The current viewpoint is that President Trump’s declaration of an “emergency” related to COVID-19 on March 13, 2020 should constitute the requisite “Federally declared disaster,” but the issue is not free from doubt. Confirmation from the IRS would certainly be welcomed. Notice 2020-23 unfortunately is silent on this issue.
There are a number of other time-sensitive actions that must be taken under Code Section 1400Z-2 that currently are not subject to any protection or extension either under Notice 2020-23 or any other authority. Failure to meet any one of these deadlines may, however, be subject to relief on a case-by-case basis for “reasonable cause” although nothing in Notice 2020-23 provides any guidance on when and how the COVID-19 emergency may (or may not) constitute reasonable cause. We anticipate that these situations will be resolved on a case-by-case basis under standard and familiar existing principles rather than under any form of blanket relief.