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IRS' 90-Day Tax Payment Delay Could Sow Confusion

By Joshua Rosenberg · March 18, 2020, 6:10 PM EDT

The Internal Revenue Service's plan to implement a 90-day delay for payments in response to the coronavirus pandemic will likely confuse individuals about their responsibilities, fail to provide relief to tax preparers and fall short of stimulating the economy.

The IRS released a notice Wednesday pushing back to July 15 the tax payment deadline for most individuals and businesses but leaving in place the April 15 filing deadline. The notice followed a brief statement on Tuesday from Treasury Secretary Steven Mnuchin that referred only to the IRS' new payment deadline, which may leave some individuals with the mistaken impression they won't be required to file their taxes until July.

By not extending the filing deadline, the agency has also failed to ease the burden on free clinics and tax preparers, many of them located in cities and states that are suggesting or requiring social distancing. 

And given that approximately half of Americans have already filed their returns, and that only a relatively small percentage of mostly high-income earners would owe taxes, it's not altogether clear how delaying payments would stimulate the economy in a significant way, according to Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center.

"It doesn't seem to be very useful as a stimulus and it doesn't do anything at all in terms of making the lives of people filing tax any simpler," Gleckman told Law360. "I'm not really sure what the point is."

The IRS notice said individuals and pass-through businesses owing up to $1 million in federal income taxes and corporations owing up to $10 million in taxes could defer payments for 90 days without interest and penalties.

Mnuchin said in a Wednesday statement that the deferral would ensure "that hardworking Americans and businesses have additional liquidity for the next several months" and that the delay would free up some $300 billion.     

As of March 6, the IRS had received tax returns from approximately 68 million Americans, according to the agency's website. Last year, there were approximately 156 million Americans who filed their taxes, meaning that the government has already received returns from approximately half of all taxpayers. 

Given that only a small percentage of individuals actually owe the IRS money after filing their taxes — the vast majority receive a refund of some kind — the government's position that extending the payment window would lead to broad economic stimulus doesn't hold water, Gleckman said. 

"The subset of filers who would benefit from this is already very small," he said.

Additionally, the group of people who end up owing the IRS money after filing their tax returns tend to be wealthy individuals, Gleckman said, meaning that keeping more money in their pockets wouldn't necessarily stimulate the economy and that many of them likely have already applied for extensions. 

"It's going to help the people who need it the least and it's not going to help many of them," he said. 

Nicole Kaeding, vice president of policy promotion at the National Taxpayers Union Foundation, told Law360 that while the proposal was a step in the right direction, it still left unresolved several practical questions that could be perplexing to tax preparers and individuals.

For instance, the question of whether businesses could file their forms electronically remains unanswered, she said.

"Individuals and businesses have enough on their plates — let's not add more paperwork to that pile," she said.

Kaeding had been calling on the agency to delay both the tax filing and payment deadline so that Americans could count on a "tax cushion" and so that low-income filing clinics, tax return preparers and the IRS could scale back activities in light of the COVID-19 outbreak. 

For its part, the American Institute of Certified Public Accountants expressed opposition to Treasury's announcement. 

"The concern and confusion related to coronavirus is causing cities across the country to shut businesses down, and Treasury's recent decisions do not reflect the real-world difficulties tax practitioners and their clients are experiencing," AICPA CEO Barry Melancon said in a statement. "Treasury must act immediately by extending the April 15th filing deadline and providing more clarity on the details of recent relief actions."

Similarly, on March 11 the organization called for Treasury to extend the tax filing deadline until Oct. 15. 

"We are hearing from our members that they and their clients are experiencing great uncertainty about this year's tax filing season," Edward Karl, AICPA vice president of taxation, said in a press release. "Our recommendations will help give taxpayers, large and small, much needed relief in the midst of this fast-moving emergency situation."

Without extending the filing deadline along with the payment deadline, the IRS risks confusing people who may determine, despite the agency's communications, that they're not required to file their tax returns for months, Gleckman said. 

"My fear is that people will miss the filing deadline because they thought they didn't have to file by April 15th," he said. "My biggest fear is that what they've accomplished here is confusing people."

--Additional reporting by Stephen Cooper. Editing by Robert Rudinger and Tim Ruel.

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