The White House and law makers met Wednesday March 11, 2020, to hash out emergency legislation to provide economic relief related to the coronavirus pandemic. There is a planned vote on Thursday March 12, 2020, with hopes that President Trump will sign the legislation into law by Friday March 13, 2020. It is expected that this legislation and related executive orders will include an extension of time to file and pay taxes normally due on or before April 15, 2020, for many taxpayers.
Steven Mnuchin, Treasury Secretary, stated on Wednesday March 11th that law makers have been working “round-the-clock” to come to a consensus on an economic relief package, which is expected to include enhanced unemployment insurance, paid sick leave and food assistance. This short-term bill is not expected to include specific tax cuts (including the President’s proposed temporary suspension of payroll taxes) and other items that the Democrats and Republicans currently disagree on. Those more controversial issues will likely be addressed in future legislation focused on economic stimulus.
Regarding tax payments due April 15, 2020, Mr. Mnuchin said that the Treasury doesn’t need Congress to approve the delay, thus he will be recommending to the President that the IRS extend the filing and payment due date, without penalty or interest, for “virtually all Americans other than the super rich.” He clarified the extended deadline would not apply to large corporation but did not provide thresholds or definitions for who these extensions will or will not apply to.
While all taxpayers have the right to request an automatic extension of time to file from April to October 15th, an extension does not typically extend the time for taxpayers to pay their tax liabilities. The administrative action that Mr. Mnuchin is suggesting would provide an extension of time to pay 2019 liabilities, however the length of the extension of time to pay is still under discussion by Treasury officials.
Tax Warrior Perspective
We expected the IRS to announce an extension of time to file in reaction to the coronavirus pandemic but are surprised by Treasury’s quick action to extend payment due dates. While we believe the IRS has administrative powers to extend deadlines and waive penalties, we are not certain they have the power to waive related statutory interest under federal emergency disaster provisions without formal legislative action. We expect this will be sorted out over the next few days before the IRS makes a final announcement that should provide the missing details about this extension of time to pay. Specifically: the length of the extension and the income or asset thresholds that will prohibit the use of such an extension.
The economic question is, if taxpayers choose to take the extension and delay their April 15th tax payments, what should they do with the cash flow available to them in the short term? With volatile markets and low interest rates, there are few options that provide security during such challenging times. For many, including business owners who may face business interruptions due to the coronavirus pandemic, the extra cash flow this extension allows may come just in time.
Stay tuned as we will update you when the IRS releases more details. If you have questions in the meantime, please do not hesitate to call on us.