Understanding the filing relief for ‘time-sensitive acts’ in Notice 2020-23

In response to the COVID-19 outbreak, Treasury and the IRS initially provided individuals and businesses limited filing and payment relief in Notices 2020-17 and 2020-18. This relief generally applied only to federal income tax returns and payments (including self-employment tax payments) due April 15, 2020, for 2019 tax years and to estimated income tax payments due April 15, 2020, for 2020 tax years.

In Notice 2020-23, taxpayers were granted much broader relief that applies to all taxpayers (including individuals, trusts, estates, corporations, and other noncorporate tax filers) with a filing or payment deadline on or after April 1, 2020, and before July 15, 2020. That period will be disregarded by the IRS in calculating any interest, penalty, or addition to tax for failure to file the returns identified in the notice. The following provides a brief background on Notice 2020-23.

Notice 2020-23

On March 13, 2020, President Donald Trump issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, P.L. 100-707, in response to the ongoing coronavirus (COVID-19) pandemic. On April 9, 2020, pursuant to the emergency declaration, the IRS issued Notice 2020-23, which provides relief to “affected taxpayers” from timely complying with certain tax deadlines and amplifies the relief granted by prior notices. Notice 2020-23 also postpones, for affected taxpayers, time-sensitive acts set forth in Regs. Secs. 301.7508A-1(c)(1)(iv) through (vi) and Rev. Proc. 2018-58. (Section III.D of the notice also provides the IRS with additional time to perform the time-sensitive actions described in Regs. Sec. 301.7508A-1(c)(2), which are not addressed by this article.)

Affected taxpayers

An affected taxpayer for purposes of Notice 2020-23 is any person (as defined in Sec. 7701(A)(1)) with a specified federal tax payment obligation (specified payment) or a specified federal tax return or other form filing obligation (specified form) that is due to be performed (originally or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020. In addition, an affected taxpayer includes any person performing a “specified time-sensitive action” that is due to be performed on or after April 1, 2020, and before July 15, 2020.

Section III.A of Notice 2020-23 identifies the specified filing and payment obligations qualifying for relief. For an affected taxpayer, the due date for filing specified forms and making specified payments is automatically postponed to July 15, 2020. This means affected taxpayers do not have to call the IRS or file any extension forms or send letters or other documents to receive this relief. Affected taxpayers requiring additional time to file may choose to file the appropriate extension form by July 15, 2020, to obtain an extension to file their return, but the extension date may not go beyond the original statutory or regulatory extension date. For example, a Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, may be filed by July 15, 2020, to extend the time to file an individual income tax return, but that extension will only be to Oct. 15, 2020. The extension granted by filing the Form 4868 will not extend the time to pay federal income tax beyond July 15, 2020.

The relief covers the filing not just of specified forms, but also all schedules, returns, and other forms that are filed as attachments to specified forms or are required to be filed by the due date of specified forms, including, for example, Schedule H, Household Employment Taxes, and Schedule SE, Self-Employment Tax, of Form 1040, U.S. Individual Income Tax Return. It also covers, for example, Forms 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations; 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business; 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund; 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs); 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships; and 8938, Statement of Specified Foreign Financial Assets. The relief also applies to any installment payments under Sec. 965(h) due on or after April 1, 2020, and before July 15, 2020. Additionally, elections that are made or required to be made on a timely filed specified form (or attachment to a specified form) is timely made if filed on the specified form or attachment, as appropriate, on or before July 15, 2020.

Specified time-sensitive actions

The specified time-sensitive actions identified in Section III.A of Notice 2020-23 include any time-sensitive action listed in Regs. Secs. 301.7508A-1(c)(1)(iv) through (vi) or Rev. Proc. 2018-58, as well as an investment in a qualified opportunity fund due to be made during the 180-day period described in Sec. 1400Z-2(a)(1)(A).

Under Sec. 7508A, in the event of a federally declared disaster or terroristic or military action, the IRS may declare a period of up to one year that may be disregarded in determining, with respect to any tax liability: (1) whether certain acts (listed in Sec. 7508(a)(1)) were performed within their prescribed period; (2) the amount of any interest, penalty, additional amount, or addition to tax for the period after the date of the disaster or action; or (3) the amount of any credit or refund. The time-sensitive actions listed in Regs. Sec. 301.7508A-1(c)(1)(iv) through (vi) are: (1) filing a petition with the Tax Court or for review of a decision rendered by the Tax Court; (2) filing a claim for credit or refund of any tax; and (3) filing a suit upon a claim for credit or refund of any tax.

Notice 2020-23 does not provide relief for any time period for filing a petition with the Tax Court or for filing a claim or bringing a suit for credit or refund that expired before April 1, 2020.

Rev. Proc. 2018-58 provides a list of time-sensitive acts supplementing and updating those of Sec. 7508(a)(1), Regs. Sec. 301.7508A-1(c)(1)(vii), and previous revenue procedures. It is divided into the following topical areas:

• Section 5. Accounting Methods and Periods.
• Section 6. Business and Individual Tax Issues.
• Section 7. Corporate Issues.
• Section 8. Employee Benefit Issues.
• Section 9. Estate, Gift, and Trust Issues.
• Section 10. Exempt Organization Issues.
• Section 11. Excise Tax Issues.
• Section 12. International Issues.
• Section 13. Partnership and S Corporation Issues.
• Section 14. Procedure & Administration Issues.
• Section 15. Tax Credit Issues.
• Section 16. Tax-Exempt Bond Issues.
• Section 17. Special Rules for Section 1031 Like-Kind Exchange Transactions.

More than 270 time-sensitive actions are identified in Rev. Proc. 2018-58. As evidenced by the guidance sections identified above, the time-sensitive actions are far-ranging. For example, the relief in Section 5 includes any act related to adopting, retaining, or changing an accounting method or accounting period, or to the use of an accounting method or accounting period, that is required to be performed on or before the due date of a tax return (including extensions). These acts include: (1) the requirements in Rev. Procs. 2006-45, 2006-46, 2002-39, and 2003-62 to file Form 1128, Application to Adopt, Change, or Retain a Tax Year, with the appropriate IRS service center, on or before the due date (including extensions) of the tax return for the short period required to effect the change in accounting period; and (2) the requirement in Rev. Proc. 2015-13, Section 6.03(1), as amended by Rev. Proc. 2018-1, Section 9.05(2), that a Form 3115, Application for Change in Accounting Method, must be filed with the timely filed (including extensions) original tax return for the year of the accounting method change and that a duplicate copy of the Form 3115 must be filed with the IRS in Covington, Ky., no later than when the original Form 3115 is filed.

Among the corporate issues covered by Section 7 are: (1) the making of a Sec. 338(g) or Sec. 338(h)(10) election; (2) completing a distribution in pursuance of a plan of partial liquidation of a corporation within the specified period as required in Sec. 302; and (3) completely liquidating a corporate subsidiary within the specified period required in Sec. 332.

Section 14 covers procedural and administrative issues as diverse as: (1) a spouse requesting relief under Sec. 6015(b) or (c) within two years of the first collection activity; (2) a partnership filing a petition for readjustment of partnership items or adjustments within a specified period with the Tax Court, Court of Federal Claims, or district court; and (3) applying for a tentative carryback adjustment of the tax for the prior tax year on a Form 1139, Corporation Application for Tentative Refund, (for corporations) or Form 1045, Application for Tentative Refund (for other taxpayers).

Understanding the scope

Taxpayers and practitioners need to carefully review Notice 2020-23 and Rev. Proc. 2018-58 to be aware of the range of time-sensitive actions that can be postponed until July 15, 2020.

— John Keenan, J.D., is a managing director, Matt Cooper, J.D., is a managing director, and Chaim Gordon, J.D., is a tax manager, all with Deloitte LLP’s Washington National Tax Services–Tax Controversy Services group in Washington, D.C. For more information about this column, contact thetaxadviser@aicpa.org.