The extension applies to 2020 individual federal income taxes, but not first quarter 2021 federal estimated tax installments, which remain due on April 15.
The extension applies to 2020 individual federal income taxes, but not first quarter 2021 federal estimated tax installments, which remain due on April 15. It is important to note that the right to defer filing/payment does not apply to other tax compliance obligations such as fiduciary, estate, calendar year corporations, fiscal year exempt organizations and gift tax returns. All remain due on April 15. It is also important to note that gift tax returns, typically extended along with the donee’s individual income tax return extension, will now require a separate extension. Also remaining due on April 15 are the annual information returns of foreign trusts with U.S. owners (Form 3520-A), as well as Form 5227, financial activities of a split-interest trust.
Presently, taxpayers have until May 17 to request a five-month extension to file returns by October 15, if the current deferral is insufficient. However, interest and penalties will accrue after May 17. Whether the Treasury or the IRS will be lenient in the imposition of penalties and interest after May 17 and if so, for how long, is still to be determined.
On March 29, IRS issued additional guidance in Notice 2021-21. In addition to discussing the extension of individual tax returns filings, including returns typically filed with individual tax returns (for example, Schedule H and Schedule SE, Forms 965-A, 3520, 5329, 5471, 8621, 8858, 8865, 8915-E and 8938), the notice also automatically postpones to May 17 the time for affected taxpayers to make 2020 contributions to their individual retirement arrangements (IRAs and Roth IRAs), health savings accounts, Archer medical savings accounts and Coverdell education savings accounts. Trustees or issuers of individual retirement accounts, typically required to file Form 5498 by May 31, may now postpone these filings until June 30, 2021.
State Tax Returns
This filing and payment extension provided by Treasury and IRS applies to federal income tax returns only, and does not automatically apply to your state and local tax filing and tax payment deadline. However, as anticipated, most states have adopted similar extensions―with the exception of Arizona, Hawaii and Iowa. Also, many cities and municipalities have not conformed to the IRS extended filing deadline, so carefully review any local filing requirements you may be subject to.
For some taxpayers, individuals and businesses alike, preparing tax returns in the current economic and pandemic environment is very challenging. While we certainly appreciate the Treasury and IRS’ deadline deferral, the failure to include the 2021 estimated tax installment payment largely cancels any benefit of the deferral. In order to accurately calculate the 2021 estimated tax payment and avoid underpayment penalties, you need to prepare most, if not all, of the 2020 tax return. We continue to encourage clients to submit their tax material to us in order to file sooner rather than later to secure refunds, to implement last minute 2020 tax saving strategies, to timely project 2020 and first quarter 2021 tax obligations (still due April 15) and to assist with cash flow management and planning.
For More Information
If you would like more information, contact the practitioner with whom you are in regular contact or any of the practitioners in the Tax Accounting Group. For information about other pertinent tax topics, please visit our publications page.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.