IRS Income Tax Payment Extension Due to COVID-19 Coming to an End, Cash Flow May Remain a Problem

COVID-19 Update

In April, the Internal Revenue Service (IRS) provided relief regarding certain filing, payment, and other time-sensitive action deadlines in the wake of the COVID-19 pandemic. In particular, any person with Federal income tax payments, income tax returns (including returns already subject to an extension), certain other filings, or certain actions that were required to be made on or after April 1, 2020 and July 14, 2020 was granted an automatic extension to July 15, 2020. This relief included the filing of income tax returns; payment of income taxes, including estimated taxes; U.S. Tax Court petitions and appeals; filing claims for refund or credit; and others. This relief applied to any “person,” including individuals, corporations, partnerships and other unincorporated businesses, trusts, estates, and tax-exempt organizations. See our prior coverage of these extensions here. July 15 is just about three weeks away, so now is the time to get prepared to meet this fast-approaching deadline.

In addition to certain filing, payment, and other relief related to the COVID-19 pandemic provided by the IRS, taxpayers were granted other forms of tax relief by Congress under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). See our prior coverage of the CARES Act and other COVID-19 issues at https://www.manatt.com/covid-19, https://www.manatt.com/navigating-covid-19/tax-issues, and https://www.manatt.com/navigating-covid-19. Among the various forms of relief granted by Congress was a relaxation of the rules related to the timing and amount of net operating losses (NOLs) that may be deducted, which rules had been changed as part of tax reform in 2017 in the legislation commonly known as the Tax Cuts and Jobs Act. More details on the changes are described in our prior alert found here, but essentially, the relief allowed NOLs from 2018 through 2020 to be carried back up to five years and removed a limitation that prevented NOLs from fully offsetting income. This reduction in NOL limits is particularly useful for businesses with NOLs from 2018 and 2019. However, NOLs from 2020 won’t be known or realized until the 2020 tax year is complete, and, as described above, taxes for 2019 are imminently due to be paid at a time when many businesses are just beginning to see a flow of funds after months of reduced or non-existent economic activity while other payment obligations continued, and while some further extension of tax return filings may be available, further extensions to the payment of taxes are not available under current law. This may be another hardship to businesses that feel as though they’ve already gone ten rounds with a heavyweight prizefighter.

How Manatt Can Help: Our experienced and sophisticated tax team can provide guidance on understanding these deadlines and tax changes, exploring options with the IRS, or finding a path to help you survive the rest of the year.

For More Information: Contact Jeffrey Mannisto, partner and leader, Manatt Tax, at jmannisto@manatt.com or 310.312.4212; Megan Christensen, partner, Manatt Tax, at mchristensen@manatt.com or 202.585.6594; Robert Duran, partner, Manatt Tax, at rduran@manatt.com or 310.312.4274; David Herbst, partner, Manatt Tax, at dherbst@manatt.com or 650.812.1320; or Scott Johnson, counsel, Manatt Tax, at sbjohnson@manatt.com or 202.585.6594.

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