The IRS announced on April 9 that it suspended processing all paper filed individual tax returns until further notice, and that its ability to process all other paper filed returns is “extremely limited.” This news comes shortly after reports surfaced that the IRS temporarily shuttered several offices at its national processing campus in Ogden, UT on April 8 as a result of a stay-at-home order resulting from the state’s response to the COVID-19 pandemic. The IRS also announced on April 9 that it postponed to July 15, 2020 the due date for the remainder of practically all other federal tax forms and “time sensitive actions” that it had not previously postponed. Delays in the processing of paper filed returns might also delay refunds related to recent tax changes enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Paper Filed Return Processing Halted
The IRS provided in its announcement, “The IRS is not currently able to process individual paper tax returns,” and added, “Paper returns will be processed once processing centers are able to reopen.” Certain taxpayers who may be exempt from filing a return were prompted to file in order to establish eligibility for an advance Recovery Rebate payment. Fortunately, the IRS established an online portal on April 10 that allows these taxpayers to submit basic information so that their advance Recovery Rebate payment can be processed without the need to file a return.
The IRS operating status may significantly hinder the ability for businesses and individuals to obtain refunds from net operating loss (NOL) carryback claims until the IRS campuses re-open. Individuals file net operating loss carryback claims on Form 1045, and corporations file carryback claims on Form 1139. But, the only way that either of these forms can be filed is by paper. Because IRS processing for paper tax returns is now “extremely limited,” there may not be adequate IRS personnel to sort the mail that they receive or process it. This is likely to cause substantial delays in the timing of cash refunds that are due as a result of carryback claims.
IRS Postpones More Deadlines
Previously, the IRS postponed to July 15 the due date for any taxpayer with an income tax return or income tax payment due on April 15. The IRS later supplemented this tax relief with a due date postponement to July 15 for federal gift tax return and associated excise tax payments. While very helpful, the previous measures excluded relief for nonprofits, second quarter estimated tax deposits, and left considerable uncertainty about the due date of various form attachments (such as Form 3520, Form 5471, and Form 5472).
The IRS swept up all of these lingering concerns with its April 9 announcement that the due date for the remainder of practically all other federal tax forms and federal tax payment obligations, as well as other “time sensitive actions” is postponed to July 15. The April 9 announcement does not postpone the time to file payroll tax returns and make payroll tax deposits; employers must continue to file Form 941 and make corresponding payments under the normal due date procedures. A complete list of “time sensitive actions” postponed until July 15 can be found in Rev. Proc. 2018-58.
To be eligible for the new relief, the due date must fall on or after April 1, 2020 and before July 15, 2020. Further, the IRS postponed the due date for second quarter estimated tax deposits for individuals, corporations, trusts and nonprofits to July 15. This means that both the first and the second quarter tax deposit obligations for these taxpayers are now due July 15. The relief also applies to installment payments under Section 965(h) due on or after April 1, 2020 and before July 15, 2020.
As a result of the April 9 IRS announcement, the due date for all time sensitive actions listed under Rev. Proc. 2018-58 is postponed to July 15. Following is a list of the common tax forms and time sensitive actions that are now covered under the IRS filing and payment relief:
|Primary tax returns|
|Estimated tax deposits|
|Schedules and other form attachments|
|Other Time-Sensitive Actions|
|Elections to be made on a specified form or attachment (including under Section 83(b))|
|Section 1031 like-kind exchange identification period and exchange period|
|Section 1042 replacement period for sale of stock to an ESOP|
Individuals and businesses are eagerly awaiting refunds from planned net operating loss carryback claims, and must plan for the contingency that the IRS may be unable to process these paper-filed claims in the near term. Fortunately, the lingering concerns about the scope of the July 15 tax filing and payment relief were assuaged with the April 9 IRS guidance. We will keep you apprised of further developments in this area. Should you have any questions, please contact us.
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