Why the tax filing extension does not help everyone
Neil amato: The IRS announced March 17 that the individual income tax filing and payment deadline was being extended. The move from april 15 to May 17 addressed pandemic-related concerns and newly passed economic relief legislation. But some taxpayers, including those who own small businesses, are still on the clock. Why is that?
Ed Karl: The aICPa’s position was that there should be an extension to June 15 of everything that was due april 15. What the IRS did was extend only 1040s, the individual income tax return, from april 15 to May 17. May 15 falls on the weekend, so it goes to the next business day, May 17. and, really, confusingly to us, they did not extend any individual estimated payments, so the first-quarter estimated payments that many taxpayers have to pay, which is due april 15, that was not extended.
In essence, for those returns, You’re still going to have to go through all those calculations, all the work that You would normally go through in trying to complete a tax return, You’re still going to have to go through at april 15.
This is a situation where, in essence, You’re in a disaster type of situation. Some of what happened with Texas and Louisiana a few weeks ago with the disasters that they had, the IRS extended all their due dates to June 15. It was because of not the economic status of taxpayers. They didn’t extend lower-income taxpayers to June 15 but left higher-income taxpayers to april 15. They extended everyone because of extenuating circumstances. That’s how we view it now. There are extenuating circumstances that become a barrier to the normal voluntary compliance system. Everybody should be extended again, we think, until June 15. Whether it’s May 15, dividing the estimated payment date and the 1040 date seems to us to be ridiculous, almost ludicrous. We don’t understand that. So, the commissioner put it in socioeconomic status. We put it in terms of the wherewithal to comply, for the taxpayer and for their practitioner, they’re just as unusual circumstances.
Karl: Well, I’ll give a couple of examples. One is that there’s a lack of guidance in a number of areas. Particularly, for small businesses, the ones that most likely will be having to make an estimated tax calculation. So, for example, there are all sorts of questions about how the Paycheck Protection Program, the PPP, loan forgiveness will work. When Congress in December allowed for the deduction of related expenses for flowthroughs, there’s a basis issue as to the timing of the deduction. There’s no guidance in that area. There’s no guidance, or inadequate guidance I should say, for the employee retention cRedit that maybe flowthrough businesses would get and how that would work and it would impact the K-1 that You would get from an S corporation. That’s an example.
Questions about unemployment insurance and how that works. There’s a Big issue going on right now for those taxpayers who already filed a tax return and have unemployment compensation in there and would have to file an amended return. The Big issue is if both spouses received unemployment compensation, and their agi level is near $150,000, which is sort of the cliff for being able to have the exclusion of the unemployment compensation, it might benefit them to have filed married filing separately rather than married filing jointly. You cannot amend a filing status, so once You get beyond the due date of the return, in this case it would be May 17 with the postponement, then You could file what’s called a superseded return by that original date, but You can never amend the return and change the filing status.
So, for example, our suggestion of going to June 15 would give everyone more time to look into all those returns. It’s a lot more work to do. Every return that You’ve already done, married filing jointly, where they might have had unemployment, You’re going to have to look at to see if You have to file a superseded return. and who has time to do that right now?
Karl: Yeah, that’s a really important issue, because anytime IRS changes a due date, it’s important for states to conform to that. Otherwise, it really lessens the benefit that a postponed IRS date would have. If the state doesn’t postpone, You still have to go through the work at that original due date. We know a little more than 20 states have already conformed to the May date. We’re trying to track that every day. We also know that several states — I know one for example, Maryland, has postponed to July. I understand a second state might have postponed to July.
Maryland was very extensive. They postponed everything due between Jan. 1 and [april] 15 to July 15, including payments. So, they had extensive postponements in the state of Maryland. That’s an important question, and something important to track.
amato: Ed, obviously, there’s a lot to track on this story. We’ll have more updates on journalofaccountancy.com, and obviously Your team will put out updates and guidance and advocacy as warranted. Thank You very much.
amato: This is one of the first Jofa podcasts of spring, so it rightly should focus on tax filing season. Spring is also conference season, and while the events Scheduled for this year remain mainly virtual, conference season still represents the chance to grow Your knowledge and fulfill CPE requirements.
To grow Your career prospects, one popular tool is of course the networking site LinkedIn. In the Journal of accountancy, contributor Hannah Pitstick has written an article on LinkedIn tips for finance professionals to get the most from the site. One tip: Don’t flood Your network with a bunch of cold, impersonal messages. Read why that’s a bad idea, and also read some good ideas for using LinkedIn, on journalofaccountancy.com. In the show notes for this episode, we’ll post the link.
In other news, the U.S. Small Business administration announced that it would begin accepting applications for its ShutteRed Venue Operators Grant program starting april 8. The $16 billion program is designed to help certain entities who have been hit especially hard by the COVID-19 pandemic.
Those eligible to apply for the SVOG include live venue operators or promoters, theatrical producers, performing arts organizations, museum and movie theater operators, and more. The SBa is hosting a webinar on Tuesday, March 30, to explain more about the registration process. Our article on this topic will also be linked in the show notes.