On March 13, 2020, the Administration issued an emergency declaration covering all states, tribes, territories and the District of Columbia. As part of that emergency declaration, the Secretary of the Treasury was instructed to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency. On Wednesday, March 18, 2020, the Treasury issued Notice 2020-17, Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic. For individuals, trusts and estates, the due date for 2019 federal income tax payments (including self-employment tax payments) and first quarter 2020 estimated tax payments originally due on April 15, 2020 has been postponed 90 days to July 15, 2020. Individuals, trusts and estates may only postpone a total of $1,000,000 in tax payments. For example, an individual taxpayer with $1,250,000 of tax payments due on April 15, 2020 must pay $250,000 on April 15, 2020 and may defer the remaining liability of $1,000,000 until July 15, 2020. Corporate taxpayers were granted a similar postponement of 90 days for up to $10,000,000 of 2019 income tax payments due on April 15, 2020. Corporate taxpayers must still make the first quarter 2020 estimated tax payment on April 15, 2020.
In addition to delaying the federal due date for payment, on March 20, 2020 Treasury Secretary Steven Mnuchin announced that the April 15th filing deadline for returns and extensions would also be delayed until July 15.
We believe the 90-day deferral may have a range of benefits for some taxpayers. For those taxpayers who do not yet have the cash available to pay the tax due on April 15, the benefit may be significant. A taxpayer who would need to liquidate a portion of their investment portfolio to raise the cash could be advantaged by leaving the money invested until July 15 – assuming the value of their portfolio increases. A taxpayer who would borrow on margin to pay the tax could realize a benefit of deferring the cost of borrowing for 90 days. Even a taxpayer who has cash available to pay the tax is benefitted by allowing their money to continue earning a rate of interest for the 90-day deferral period. We believe this represents a great opportunity to talk with your investment and tax advisors to determine whether it makes sense for each of you individually to take advantage of the deferral period.
Some of the states have also begun to issue guidance regarding tax return due dates and tax payments. The AICPA has compiled a report (linked here) that it will be updating regularly as states issue additional guidance. For states that remain silent on this issue, state payments and either extensions or filed returns are still required by their original due dates.