On May 28, 2020, the IRS published, as part of its People First Initiative, Notice 2020-35. Notice 2020-35 provides additional postponement of required actions, to July 15, 2020, for items related to employment taxes and exempt organizations due on or after March 30 and before July 15. Notice 2020-35 supplements the various forms of relief the IRS had provided earlier in Notice 2020-23, which extended a number of due dates for taxpayers who had items due to be paid, filed or submitted, after March 31 and on or before July 15 (the “Suspension Period”). All of these items were extended to July 15, 2020.
In the part one of this two-part article, we addressed the various requirements that were suspended until July 15 and suggested what individual taxpayers should be doing currently to make sure they are ready to meet the extended due date. In this second and last part, we will cover action items under the two Notices highlighted above that are applicable primarily to business taxpayers, including corporations, pass-through entities and exempt organizations.
It should be noted that waiting too long to get started on the July 15 action items could put business taxpayers at risk of not being able to meet the July 15 due date, with the potential for interest and penalties to accumulate until the particular requirement is satisfied.
This article will not discuss state tax implications, as not every state has agreed to conform to the People First Initiative. Business taxpayers should be aware of how their respective states have reacted to the COVID-19 pandemic and adjusted their due dates, if at all.
The due date for payment of the 2019 income tax liability for corporations was extended by Notice 2020-23 from April 15 to July 15, 2020, without interest or penalties. The due dates for estimated tax payments for the first and second quarters of 2020 (which would otherwise be April 15 and June 15, respectively) were suspended until July 15, 2020. Corporate taxpayers should be prepared to make a single payment on or before July 15, 2020, in an amount that covers both the first and second quarter estimated taxes for 2020. There is no current provision for further suspension of these payment deadlines. Note that although a corporate taxpayer will be able to extend the filing deadline for the 2019 income tax return to October 15, 2020, payment of any income tax liability remains due July 15.
Businesses that had profits from businesses activities outside of the U.S. prior to 2018 were likely subject to the §965 transition tax. For businesses that elected under §965(h) to pay the transition tax in eight (8) annual installments beginning with the 2017 taxable year, the payment of the third installment (for the 2019 taxable year), which otherwise would have been due on April 15, 2020, has been extended to July 15, 2020. Part I of this article (see link above) provides additional details about the implications of not meeting the July 15 tax payment deadline and examples of prior tax liabilities to which this extended deadline does not apply.
Income Tax Return Filings
The due date for all 2019 income tax returns for corporations and pass-through entities has been extended from April 15 to July 15. A business taxpayer must either file an income tax return by that date, or file an extension form (Form 7004) by that date to extend the return due date to Oct. 15 in the case of C corporations (Form 1120) or Sept. 15 in the case of partnerships (Form 1065) and S corporations (Form 1120-S). The Oct. 15th or Sept. 15th filing deadline has not been extended. As noted above, the further extension of the due date to file the return does NOT extend the due date to pay the tax due for 2019 (which is July 15). It should further be noted that if a taxpayer is also required to submit international reporting forms, such as Forms 8938, 3520, 5471, 5472, 8858, 8865, 8621, etc., those need to be filed by July 15, or the extended due date of Oct. 15 or Sept. 15. The due date for FinCen Form 114, the so-called FBAR form, is automatically extended to Oct. 15.
Notice 2020-23 provides relief for filing claims for credit or refund of employment tax due to be made on or after April 1, 2020 and before July 15, 2020. Claims for credit or refund of employment tax generally arise out of over-withholding of employment tax in prior periods. The extended due date for filing these claims is July 15. Notice 2020-35 provides additional relief for employers to make interest-free adjustments to correct employment tax reporting errors (such as over-withholding or under-withholding of employment tax). These errors can be corrected interest-free until July 15. Employers should be taking curative actions now, such as reviewing prior Forms 941 (Employer’s Quarterly Federal Tax Return) and Forms 943 (Employer’s Annual Federal Tax Return for Agricultural Employees), in order to ascertain whether claims for credit or refunds, or corrective adjustments to prior employment tax reporting, need to be made by July 15.
Notice 2020-35 also provides a temporary waiver of the requirement by Certified Professional Employer Organizations (CPEOs) to file employment tax returns on magnetic media (including electronic filing). The waiver applies to Form 941 (only for the second, third and fourth quarters of 2020) and Form 943 (only for the calendar year 2020) and their accompanying schedules. For the periods to which the temporary waiver applies, CPEOs are permitted, but not required, to file paper Forms 941 and 943 and their accompanying schedules in lieu of electronic submissions.
Excise Tax Return Filing
For employers that fund employee benefit plans which are subject to excise tax (e.g., the employee stock ownership plans, ESOPs), Notice 2020-35 extends to July 15, 2020, the deadline for filing Form 5330 (Return of Excise Taxes Related to Employee Benefit Plans). Interest and penalty for failure by an employer to file this Form are waived until July 15 (with such interest and penalty kicking in from July 16, 2020, onwards).
Exempt Organizations Filings
Tax exempt organizations with a Form 990-N filing obligation have until July 15, 2020, to fulfill that obligation, according to the relief provided under Notice 2020-35. Form 990-N (Electronic Notice (e-Postcard)) is required to be filed by tax-exempt organizations that are not required to file Form 990 or Form 990-EZ. The regular deadline for Form 990-N filing for calendar year tax-exempt organizations is May 15.
FATCA Report Filings
On April 20, 2020, the IRS published an update to a new FATCA FAQ extending the deadline for filing Form 8966 (FATCA Report) from March 31, 2020, to July 15, 2020. Form 8966 is required to be filed by certain foreign financial institutions, such as banks, hedge funds, private equity funds, etc., to report information with respect to certain U.S. accounts (such as bank accounts, custodian accounts, brokerage accounts, insurance contracts, ownership of stock in a foreign financial institution, etc.) with a balance or value in excess of $50,000 to the IRS. Foreign financial institutions with a Form 8966 reporting obligation need to meet that obligation by July 15, 2020; there is no further extension of this deadline.
In Notice 2020-23, IRS postponed to July 15, 2020, any deadline for the 180-day investment requirement that otherwise would have occurred on or after April 1, 2020 and before July 15, 2020. Beyond this provision, IRS had been silent on any other postponements related to opportunity zone requirements.
On June 4, 2020, IRS issued Notice 2020-39, which contained additional postponements of time related to opportunity zone investments.
- If the last day of the the 180-day investment period within which a taxpayer must make an investment in a QOF in order to satisfy the 180-day investment requirement falls on or after April 1, 2020, and before December 31, 2020, the last day of that 180-day investment period is postponed to December 31, 2020.
- In the case of a QOF whose (i) last day of the first 6-month period of the taxable year or (ii) last day of the taxable year falls within the period beginning on April 1, 2020, and ending on December 31, 2020, any failure by that QOF to satisfy the 90-percent investment standard for that taxable year of the QOF is—
- due to reasonable cause under section 1400Z-2(f)(3); and
- disregarded for purposes of determining whether the QOF or any otherwise qualifying investments in that QOF satisfy the requirements of section 1400Z-2 and the section 1400Z-2 regulations for any taxable year of the QOF.
- For purposes of the substantial improvement requirement with respect to property held by a QOF or qualified opportunity zone business, the period beginning on April 1, 2020, and ending on December 31, 2020, is disregarded in determining any 30-month substantial improvement period (that is, the 30-month substantial improvement period is tolled during the period beginning on April 1, 2020, and ending on December 31, 2020).
- All qualified opportunity zone businesses holding working capital assets intended to be covered by the working capital safe harbor before December 31, 2020, receive not more than an additional 24 months to expend the working capital assets of the qualified opportunity zone business, as long as the qualified opportunity zone business otherwise meets the requirements to qualify for the working capital safe harbor.
- If any QOF’s 12-month reinvestment period includes January 20, 2020 (that is, the date of the disaster identified in the Major Disaster Declarations), that QOF receives up to an additional 12 months to reinvest in qualified opportunity zone property some or all of the proceeds received by the QOF from the return of capital or the sale or disposition of some or all of the QOF’s qualified opportunity zone property, provided that the QOF satisfies the requirements of § 1.1400Z2(f)-1(b)(1) and invests the proceeds in the manner originally intended before January 20, 2020.
Under Notice 2020-23, the IRS also extended until July 15, 2020, the period within which a taxpayer has to respond to an IRS information request with respect to a pending Offer in Compromise; the period within which a taxpayer has to respond to an IRS information request with respect to an on-going audit; the 45-day period within which to identify replacement property or relinquished property and the 180-day period within which to purchase relinquished property or sell relinquished property in like-kind exchanges. The IRS also suspended certain on-going tax collection activities until July 15.
The tax attorneys at Buchanan are available to assist you and your clients in making sure that everything that needs to be done by the end of the Suspension Period on July 15 is accomplished.