In the spring, as the COVID-19 pandemic swept the globe, the IRS took action to extend a wide variety of filing deadlines. Taxpayers and tax practitioners both needed the extra time, as offices across the country shut down, quarantining took effect, and many people became sick.
While the IRS and states postponed many tax filing and payment deadlines that fell between April 1 and July 15 (see Notice 2020-23 and the AICPA’s state guidance chart), they have not postponed deadlines falling after that period, except in the case of taxpayers affected by certain natural disasters. And the extension period for individual and calendar-year corporate tax returns was not increased, so the due date remains Oct. 15.
With that tax filing deadline looming, the pandemic continues to disrupt people’s lives. Many tax practitioners are trying to manage their workload but are still working at home, often with children at home instead of at school, and many are caring for sick family members or are sick themselves. On top of this, many have been helping small businesses with Paycheck Protection Program loan applications and forgiveness.
All of this means that some practitioners are overwhelmed and concerned that they will not be able to meet the Oct. 15 deadline for all returns.
During the pandemic, the AICPA has been communicating its concerns to Treasury and the IRS about practitioners’ ability to meet various filing and payment deadlines. Based on discussions with the IRS, the AICPA understands that the Service is willing to work with taxpayers who need relief.
Practitioners who have made a good-faith effort to meet the filing deadlines on behalf of their clients, but are unable to do so due to COVID-19, should write “COVID-19” in an attachment to the return briefly describing the reason they cannot meet the deadlines, or, if possible, should write “COVID-19” at the top of the tax return to indicate the need for penalty relief.
The AICPA suggests that practitioners contact their software providers with questions regarding appropriate form notations. If the software provider requires a state-specific disaster code, those may be found at the Federal Emergency Management Agency (FEMA) Declared Disasters page.
If an affected taxpayer that had indicated the need for penalty relief due to COVID-19 receives a late-filing or late-payment penalty notice from the IRS, the practitioner should gather the appropriate facts and call the phone number on the notice to resolve the issue. Additionally, practitioners should be aware that under reasonable-cause standards, “[a]ny reason that establishes a taxpayer exercised ordinary business care and prudence but nevertheless failed to comply with the tax law may be considered for penalty relief” (Internal Revenue Manual §126.96.36.199.2.1).
The AICPA has also made recommendations for administrative, filing, and payment relief for state and local taxes. The AICPA has suggested that state CPA societies advocate for an additional month for state filing after federal deadlines, and several states have provided automatic and case-by-case relief.
— Alistair M. Nevius, J.D., (Alistair.Nevius@aicpa-cima.com) is The Tax Adviser’s editor in chief.