COVID-19 and Taxes: What You Should Be Thinking About
The efforts to contain the spread of COVID-19 are impacting everyone in ways that most could not have predicted, and uncertainty is going to continue as new and constantly changing measures are being implemented daily and hourly. What is clear is that the aviation industry has been hit hard and early in the process and drastic measures will be needed to deal with the fallout. Airlines, aircraft lessors and investors, manufacturers, and service providers to the industry are all waiting and watching for what comes next and what steps might be taken to ease the pain going forward.
In the short term, government entities at all levels are paying attention and many are already trying to accommodate businesses and people impacted by the containment measures (whether in the aviation industry or otherwise). Within the last few days, the IRS and many state tax agencies have issued guidance regarding deferrals for filing and/or paying certain taxes. Sometimes the guidance is muddled, confusing, and technical in nature. Misinterpreting the guidance can have severe consequences later on. Two examples are provided below which at first glance seem straightforward enough but could easily catch a taxpayer off-guard months down the road. This is a fluid situation and changing every day. At FMJ we have the experience and resources necessary to walk you through your specific tax question or issue.
IRS Announces Extended Due Date of July 15, 2020, for Income Tax Filings and Payments
On March 18, 2020, the IRS announced federal income tax payments would now be due on July 15, 2020, instead of April 15, 2020. According to the IRS’s guidance, this does not apply to every income taxpayer (although it does apply to most). Income taxpayers may postpone paying the following until July 15, 2020:
- Up to $1 million of federal individual income tax, and
- Up to $10 million of federal income tax for consolidated groups of companies or each C corporation that does not join in a consolidated group.
This includes amounts due for the 2019 tax year and estimated tax payments for the first quarter due for the 2020 tax year. So, for example, if C Corporation owes $9 million for the 2019 tax year it has not yet paid and also owes $2 million in estimated tax payments for the first quarter of 2020, it is still required to pay at least $1 million by April 15, 2020, or face penalties and interest on that $1 million.
And today, March 20, 2020, the IRS announced it was extending the income tax return filing deadline to July 15, 2020, as well. As of this writing, the IRS has not even updated its website with information on this but does have a specific COVID-19 information webpage. Even so, if you have not yet filed your 2019 individual income tax return and will be due a refund, you should file that return as soon as possible to obtain that refund.
State taxing agencies frequently follow the IRS’s lead and mirror their extended due dates for payments and filings but the states are not required to so be sure to monitor your state’s guidance. However, states have many more tax types than the federal government with their own filing and payment quirks as discussed next.
Minnesota Announces 30-Day Grace Period for Affected Businesses to Pay Sales Tax
The federal government does not impose a sales tax but many states, including Minnesota, do. The Minnesota Department of Revenue recently announced that in light of Governor Walz’s COVID-19 related Executive Order, the Department would grant a 30-day grace period to affected businesses to remit their February 2020 sales tax payment to the state. Instead of the February 2020 sales tax payment being due on March 20, 2020, it is now due on April 20, 2020. The February 2020 sales tax return must still be filed by March 20, 2020. The businesses affected include establishments such as bars, restaurants, cafes, movie theaters, museums, fitness centers, and sporting venues such as golf courses. Additional information can be found on the Minnesota Department of Revenue’s website.
While the 30-day payment grace period may sound like the Department of Revenue is giving affected businesses permission to use the sales tax collected from customers to fund continued business operations, it is not. Affected businesses should pay the February 2020 sales tax as soon as possible (prior to the new April 20 deadline) to avoid potentially devastating consequences in the future. If not paid by April 20, penalties and interest will be added and the Department may begin taking aggressive actions to collect the unpaid sales taxes including:
- Garnishing the business’s bank accounts,
- Filing liens against the business’s property,
- Revoking business and professional licenses, and
- Instructing liquor distributors to stop delivering alcoholic beverages to the business.
In more extreme cases, the Department can also go after the assets of the business owners and officers through what is referred to as a personal liability assessment. If this happens, the owners and officers of the business may find that their personal bank accounts are garnished or a lien is filed against their home. To avoid these often backbreaking consequences, affected businesses should not use their February 2020 sales tax collections to fund business operations and should remit the tax to the state as soon as possible while continuing to pay Minnesota sales tax timely.