News from Recent IRS Notices

Hey gang Tom O’Saben coming to you again from the Southern Command Center of the University of Illinois Tax School, from my remote office in Maryville, Illinois. I hope this finds you well. This time in my blog, I’m going to concentrate on recent IRS notices that have come out, especially those which have happened since we did our webinar in early April. Now, I believe most of you know that the filing season was changed (that’s the language that I’ve used both in blogs and the webinar) to July the 15th. That’s both the date for filing and the date for filing extensions and the date for payments to be due. But there were some other clarification that needed to be done with regard to these due dates. Now, I will tell you that I’m going to cover about three notices and there could be more and more coming out all the time. Most of these that I’m talking about came out on April 9, hot and heavy in the afternoon late in the day just saw them just starting to pop in. I will mention as a reminder that most of the due date changes reflect around April 15. So I know I mentioned in previous blogs and also in the webinar that we did that the March 15 date, which I know was March 16 because the 15th was on a weekend, was not changed. So those partnership and S corp returns that were due on March 15, or 16th? If you didn’t get an extension filed, they’re now late. And we could be looking at a $205/month penalty per shareholder or partner. So we want to go ahead and get those filed as quickly as possible if you happen to miss filing the extension.So we’ll bring up the first slide here we’ll talk about IRS Notice 2020-22. And we also give you the web link for those of you who like to read notices and power to you if you love to. What this does is give clarification in the Families First Act. So if you remember from the webinar, you might want to go and do a video replay on our webinar if you didn’t get a chance to participate in it… Under the Families First Act, if an employer is providing paid sick leave to those who are impacted by the Coronavirus, the employer can in fact retain the payroll taxes that they were scheduled to deposit and in essence compensate themselves for the payroll that they’re putting out. So they don’t have to make the tax deposits. IRS Notice 2020-22 basically clarifies that those employers will not be subject to late deposit penalties, because they were retaining this money, and it was being used under the Families First Act, which was that first law actually was the second law that came out under this three-legged stool of different acts that came out between February and the end of March of this year. So this again, will give clarification to the fact that the employer should be exempt from late deposit penalties because they retained those payroll taxes in order meet the rules under the Families First Act credit. We mentioned that it’s for the period April 1 to December 31, 2020. And then again, it ensures the employers that they won’t be subject to a penalty. I would expect 941 forms to be updated at some point to reflect this as well beginning with the second quarter, since this goes into effect on April the 1st. So that would be one to keep in mind.

The next notice is Notice 2020-23 is dealing with (and again, you can see the link there to the PDF of the document) and it’s dealing with the fact that the July 15 date applies to most every taxpayer other than entities or others who don’t have an April 15 deadline. Why did they bother to come out with this? They came out with it because the original notice, I think it was 2020-18, only addresses like individuals and trusts and other entities that were due on April 15. It didn’t, for example, address estates, like a 706 or gift tax returns on a 709. Anything with an April 15 due date has been changed. Take out April 15, like I’ve mentioned in previous blogs, and in our webinar, and enter July 15 as the due date. That includes the due date, and the payment date. Now, as far as payroll tax deposits happen to go, if you’re not doing something under the Families First Act – I’ve seen these questions pop up on Facebook – we’re still looking at, they could be late. And as far as I know, 941 filing is still April the 30th for the first quarter. I haven’t seen any change of that it’s not an April 15 due date, keep that in mind. Also, if you’re dealing with not-for-profits who operate on a calendar year, we have that May 15 due date without extension, those returns are due. So a couple things that came out here in the notice and you’ve got the slide up there in front of you – that filing extensions then also aren’t going to be required until July 15. So, again, what do clients have to do on April 15? Hopefully you didn’t get bothered too much. I put out a lot of postings like an automatic reply to my emails, letting people know that on April 15, from a federal standpoint, there was nothing you had to do. Strike out April 15, enter July 15. But for those clients who still don’t have things together, or we maybe didn’t get to it, by July 15, that’s when you’re going to file the automatic extension (that Form 4868). But caution, that is not going to give your taxpayer six months to file. It’s going to give them three more months. We’re still going to go to that October 15 final deadline unless we get another Revenue Procedure that changes it. But as we’re talking today, there is no new Rev Proc and an extension will give the taxpayer until October 15. We also need to remind our clients that that extension is in time to file, not in time to pay. For those taxpayers who would have a balance due, they still would have interest calculating, but it would be from July 15, not April 15. So again, we have the dates changed. We also got clarification in this Notice 2020-23 that we had the April 15 estimated tax payment for federal was moved to July 15. But they were silent about the second quarter estimated tax payment, which is scheduled to be due on June 15. Well, I don’t know that I’m crazy about their decision, but they at least see it. What they’ve done in the notice – and we show you there on the slide – is that both the April the first quarter, and the second quarter estimate are now both due on July 15. So I’ve had a number of clients contact me – I’m guessing your situation isn’t any different than mine – where some taxpayers want to just go ahead and pay it now, because they’re accustomed to the cash flow in  different times of the year. But nonetheless, the rule out of 2020-23 states that both the first quarter and the second quarter estimates are now both due on July 15. Stay tuned, that could change. In the webinar, I mentioned that we needed to be concerned about 2016 returns, that if you were looking at amending any 2016 returns that we were coming up against the statute of limitations, the three years after the original filing deadline. Well, I had mentioned in the webinar that the original filing date of 2016 return was April 18 of 2017. Because we have that issue with April 16; April 16 falls on a Sunday. It’s recognized on Monday, it’s a federal holiday in DC and Maryland. So the due date moves forward one more day, making it April 18, 2017. Three years would have made it April 18, 2020. I caution people that you needed to get those 2016 returns filed. If a client was trying to get a refund by amending that return by April the 18th of 2020? Guess what – Notice 2020-23 as we showed you in the slide says those 2016 returns also have the new due date of July 15, 2020. So they’re getting another three months. I found that very interesting. I believe I mentioned in the webinar we did earlier this month that I thought that was pretty much a drop dead situation, because the due date wasn’t April 15, 2020. It was the expiration of the statute limitations, but you know what we’ll take what they give us.

The next slide we want to show you is IRS Notice 2020-24. Again, we give you the PDF link. This deals with net operating losses. Now I’m going to spend just a few minutes on this. And I wanted to tell you that what we had changed in the CARES Act (and we talked about this in our webinar April 7 & 8) that under the CARES Act, a taxpayer with a net operating loss in tax years 2018, 2019, or 2020, the default is to carry that loss back for five years. Except what TCJA had done, which was to say, carry back losses is gone, which would have been in effect for 18 and 19. You have to carry that loss forward, it can only offset 80% of the income in the carry forward year. And if the loss was too big, we have an excess business loss, which limits the NOL that can be taken. Well, all of that is basically been scrapped for 2018 and 2019, and then going forward to 2020 returns. But in this provision, if you knew what the rules were prior to the enactment of TCJA, I think most of you would agree that if you were dealing with a 2016 or 2017 return, and your client had a net operating loss, the default was two year carry back – I always just do two and two – 2 year carry back… 20 year carry forward. So I’m going to extrapolate that out to the CARES Act to say that the default decision if you’re going back and changing a 2018 return, amending a 2018 return or in fact a 2019 return that may have been prepared before March 27 (the date of enactment of the CARES Act), when we go back and amend, the default treatment is going to be five year carry back. So the question becomes, how long do taxpayers have – for example, say on that 2018 return? I’m happy that I’ve got an NOL but I don’t want to carry it back. I want to carry it forward. It used to be, again pre TJCA,  that that decision to forego carry back had to be done on a timely filed return. Well, 2018 no way it’s going to be timely filed now. Whereas the default carry back is on an originally filed return. See the difference? So the important thing was in the CARES Act I read that it said that it looked like you only had 120 days from the date of enactment (meaning from March 27…120 days). We mention that on the slide, which would mean July 27 to deal with a loss – an NOL – on a 2018 and elect to forego carry back in other words to carry that loss forward. Well 2020-24 clarifies and gives us some more time. If you look at the last bullet point it changes the due date for the election to forego carry back. Remember, carry back is automatic unless you elect to forego it, and that typically had to be on a timely filed return. IRS will consider that to be timely filed if in fact – and I took this right out of the IRS notice  – the due date including extension for filing the taxpayer’s federal income tax return for the first taxable year ending after March 27, 2020. It seems to me that would be next April or by extension October 15 unless the due dates get changed again next year. So that’s a help there in dealing with these new carry back provisions of NOLs. I find that very helpful. If you get the opportunity (I’ll put a shameless plug in for our Fall Tax School), we have a chapter on net operating losses that I think would be worth spending some time with, because in fact, we’re dealing with what things look like under TCJA. And then amending a return to take into consideration the CARES Act; might be very useful for you.

One other tidbit I want to mention that’s not a notice that actually came out today (today for me is April the 16th) I’m giving this to you. I just read this off of one of the guide wire things I get from IRS, it says because of COVID-19, the IRS is not processing paper tax returns at this time. Wow. What about those amended returns we submit? I guess, you know, they’re going to keep the envelopes. I know this happened when we had IRS shutdown in the past, you might recall, they retain the envelopes to go by the date as to which it was received even though they were processing it later. And they don’t have a date on this notice that I received. I don’t know that can call it a notice; it was attached to a guide wire report that I had. But nonetheless, the IRS is not processing paper returns, but I would get the correspondence and everything else that you’re trying to get to IRS, get those submitted by the due dates you see on the correspondence, or within the due dates for amending returns. I do know, again, based on history with the IRS when they had shut down in the past that they’ll go by the due date or the date that’s stamped on that envelope. So be careful there.

So a few notices… we’re going to try to keep you posted. There’s lots of things coming out hot and heavy. Tax season continues. Hopefully not 16-18 hour days like we used to have. But hang in there. We’ll attempt to get you as much information as possible. We’re watching the Facebook page carefully. Gina will put up a link here for those of you who maybe don’t belong to the Facebook page. It doesn’t cost anything. But join and see a lot of good information being shared from fellow practitioners. And I love the ones where they say “watching.” In other words, watching for comments on a question that somebody might post. So, again running a little bit long on this, but I wanted to get some more information out to you as we get it available. So stay safe. Don’t forget about yourself. So from the Southern Command Center for the University of Illinois Tax School, for all of us here at Tax School, this is Tom O’Saben saying goodbye for just a while.
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