Tax Relief in Response to the COVID-19 Outbreak

March 26, 2020 Articles

In order to combat the adverse economic effects in which many individuals and businesses are experiencing as a result of the COVID-19 outbreak, the federal government and the State of California will provide tax relief in various forms. 

  • Certain federal income and self-employment taxes otherwise due on April 15, 2020 are extended until July 15, 2020.  The relief is available only for tax owed on April 15 with respect to the 2019 tax year, and for those estimated tax payment due on April 15 with respect to the 2020 tax year.  This tax reprieve is unlimited and is available regardless of the amount of tax due. Tax return filing deadlines are also extended to July 15, 2020.  
  • Under the People’s First Initiative, beginning April 1 and through at least July 15:
    • The IRS is suspending installment agreement payments, but interest will continue to accrue on any unpaid balances.  Furthermore, the IRS will not default any installment agreements during this time period.
    • Taxpayers unable to fully pay their federal taxes can resolve outstanding liabilities by entering into a monthly payment agreement with the IRS.
    • Taxpayers facing a tax liability that exceeds their net worth may be able to resolve that liability using the Offer in Compromise (OIC) process, which is designed to resolve outstanding tax liabilities by providing a “Fresh Start.” 
    • With respect to taxpayers in various stages of the Offer in Compromise (OIC) process:
      • The IRS will allow taxpayers until July 15 to provide additional information the IRS requested to support a pending OIC. In addition, the IRS will not close any pending OIC request before July 15, 2020 without the taxpayer’s consent. 
      • The IRS is giving taxpayers the option of suspending all payments on accepted OICs until July 15, 2020, but interest will continue to accrue on any unpaid balances
      • The IRS will not default an OIC for those taxpayers who are delinquent in filing their tax return for tax year 2018, but taxpayers should file any delinquent 2018 return and their 2019 return on or before July 15, 2020.
    • IRS revenue officers will not initiate liens and levies (including any seizures of a personal residence).  However, they will continue to pursue high-income non-filers.
    • The IRS will not be issue new automatic, systemic liens and levies.
    • The IRS will not send new certifications to the State Department for taxpayers who owe more than $52,000 in taxes during this time period. 
    • The IRS will not send new delinquent accounts to private collection agencies.
    • In general, the IRS will not start new field, office, and correspondence audits. However, the IRS may start new audits when necessary to protect the government’s interest in preserving the applicable statute of limitations.
    • The IRS shall suspend in-person meetings for current field, office, and correspondence audits.  Where possible, IRS examiners will continue their audits remotely. 
    • Taxpayers have until July 15, 2020, to submit verification to the IRS that they qualify for the Earned Income Tax Credit or verification of their income.  
    • Appeals employees will continue to work their cases, but will not hold in-person conferences with taxpayers.  Conferences may be held over the telephone or by video conference.
    • The IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where a statute might expire during this time period, the IRS asks taxpayers to cooperate in extending such statutes. Otherwise, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the government's interests in preserving such statutes.  However, if a statutory period is not set to expire during 2020, the IRS is unlikely to pursue an extension or issue a deficiency notice until at least July 15, 2020.
  • The California Franchise Tax Board (FTB) is postponing until July 15, 2020, the filing and payment deadlines for all individuals and business entities for the following: (i) 2019 tax returns; (ii) 2019 tax return payments; (iii) 2020 first and second quarter estimate payments; (iv) 2020 LLC taxes and fees; and (v) 2020 non-wage withholding payments. This relief is available to all California taxpayers, not just to those affected by COVID-19. Taxpayers do not need to file any claim or call the FTB to qualify for this relief. The updated relief supersedes the COVID-19 relief the FTB announced last week pursuant to which it extended until June 15, 2020, the due dates for filing and paying California taxes for taxpayers affected by COVID-19.
  • The California Employment Development Department (EDD) has announced that employers statewide directly affected by COVID-19 may request up to a 60-day extension of time from the EDD to file their state payroll reports and/or deposit payroll taxes without penalty or interest.  A written request for an extension must be received within 60 days from the original delinquent date of the payment or return.
  • In San Francisco, Mayor London Breed announced that she will work with the City’s Treasurer to notify small businesses that the next round of quarterly businesses taxes can be deferred.  Businesses that are usually required to pre-pay their first quarter business taxes for current tax year by April 30 can defer such payments until February 2021. No interest payments, fees, or fines will accrue as a result of the deferral. This benefit is available to business with up to $10 million in gross receipts. The City will provide further tax relief by delaying the City's collection of the unified license bill. The initial delay will be for three months, with a further delay to be contemplated based on need.
  • The IRS has granted an extension, from March 31, 2020 to July 15, 2020, to file Form 8966, FATCA Report, as required under the Foreign Account Tax Compliance Act.  Form 8966, FATCA Report, is required to be filed to report information with respect to certain U.S. accounts, substantial U.S. owners of passive non-financial foreign entities, specified U.S. persons that own certain debt or equity interests in owner-documented foreign financial institution, and certain other accounts as applicable based on the filer’s status.  The filing of Form 8809-I, Application for Extension of Time to File FATCA Form 8966, will not be required for this extension.
  • The IRS has advised that high-deductible health plans (HDHPs) will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. The IRS also noted that, as in the past, any vaccination costs continue to count as preventive care and can be paid for by an HDHP.
  • Under the newly enacted Family First Coronavirus Response Act, workers at companies with fewer than 500 employees are given up to 12 weeks of paid family and sick leave to deal with virus-related issues, including staying home to care for children whose schools are closed. Subject to certain limits, the employer portion of Social Security tax  (but not the employer portion of Medicare tax) due will be reduced by the amount of paid sick leave provided to employees under this act and the amount of paid public health emergency leave provided to employees under the amended FMLA. If this tax credit exceeds the amount of the employer’s portion of Social Security tax due for the quarter, the employer may treat the excess as a refundable overpayment. A similar credit for social security taxes will be provided to self-employed individuals.