Tax Filing and Payment Extended to July 15

Posted by Kevin on June 23, 2020 under Bankruptcy Blog | Comments are off for this article

The federal April 15, 2020 tax filing and payment deadlines have been postponed to July 15, 2020.  Also, no interest or penalties accrue. 

 

Federal Income Tax Return Deadline Postponed

As you are probably aware, responding to the COVID-19 pandemic, the IRS has postponed the deadline to file federal income tax returns by 3 months. That date is fast approaching.

This tax return postponement applies to all individuals, but also more broadly. It includes every legal “person”:  “an individual, a trust, estate, partnership, association, company or corporation.” IRS Notice 2020-18. So it covers all individuals and businesses.

Federal Income Tax Payment Due Date Postponed

Just as important, the date that tax payments are due is also postponed from April 15 to July 15, 2020.  IRS Notice 2020-17.)

This applies more broadly than just taxes due for the 2019 tax year. For those paying estimated income taxes quarterly, the payment that was due April 15 is now instead due on July 15, 2020.

There’s no limit to the amount of tax amount postponed. There was a prior maximum amount postponed (in IRS Notice 2020-17) but that maximum has been eliminated. IRS Notice 2020-18, Section III, paragraph 2.

No Interim Interest and Penalties

Since taxes previously due on April 15 are now due on July 15, 2020, no interest or penalties will accrue during those 3 months. As the official Notice states:

the period beginning on April 15, 2020, and ending on July 15, 2020, will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to file the Federal income tax returns or to pay the Federal income taxes postponed by this notice. Interest, penalties, and additions to tax… will begin to accrue on July 16, 2020.

IRS Notice 2020-18, Section III, paragraph 5.

No Extension Needed

This postponement of tax returns and tax payments is automatic. You don’t need to file any extension forms.

If you’ll need more time past July 15, the IRS says:

Individual taxpayers who need additional time to file beyond the July 15 deadline can request a filing extension by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses who need additional time must file Form 7004.

IR-2020-58.

Tax Refunds Not Affected?

If you were expecting a tax refund, you should have filed as soon as possible. The IRS is encouraging you to do so:

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds are still being issued within 21 days.

IR-2020-58. If you need your refund, the pandemic makes it all the more important to file as soon as possible.

ONLY April 15, 2020 Deadlines Affected

Things are changing fast, but at the moment this postponement does not apply to any other deadlines. For example, there’s no current extension for the March 16, 2020 deadline for corporate tax returns for tax year 2019 or the May 15, 2020 deadline for tax-exempt organizations. Also, the regular filing/payment date of July 15, 2020 still applies for quarterly filers. Again, these may also change.

State Income Tax Deadlines

On April 14, 2020, Governor Murphy issued an order extending the time for filing of individual returns and the payment of taxes thereon to July 15, 2020.

You Can Write Off Some Income Taxes with Bankruptcy

Posted by Andy Toth-Fejel on November 11, 2018 under Bankruptcy Blog | Be the First to Comment

Chapter 7 vs. 13 for Income Taxes

Thinking that the only way to handle your income tax debts in bankruptcy is through Chapter 13 is a misunderstanding of the law. It’s an offshoot on the broader error that you can’t write off taxes in a bankruptcy.

Both are understandable mistakes.

It is true that some taxes cannot be discharged (legally written off) in bankruptcy. But some can.

And it is true that Chapter 13 can be the best way to solve many income tax problems. But that does not necessarily mean it is the best for you. Chapter 7 might be better.

When Chapter 13 Is Better

Chapter 13 tends to be the better option if you owe a string of income tax debts, and especially if some are relatively recent ones. That’s because in these situations Chapter 13 solves two huge problems in one package.

First, if you owe recent income taxes which cannot be discharged, you are allowed to pay those taxes over the term of your Chapter 13 plan (up to 60 months) usually avoiding most penalties and interest that would have accrued during the term of the plan. That can be a huge savings.  Moreover, you can often hold off on paying anything towards the back taxes while you first pay even more important debts—such as back child support.

Second, if you have older back taxes, under Chapter 13, you pay these taxes as general unsecured debt under your plan.   If you complete all payments under your plan and otherwise satisfy the requirements of Chapter 13  any remaining older taxes are discharged; i.e., wiped out.

When Chapter 7 is Better

But you don’t need the Chapter 13 package if all or most of your income tax debts are dischargeable. In that situation, the generally much simpler Chapter 7 could be enough.

So, what makes an income tax debt dischargeable under Chapter 7?

The Conditions for Discharging Income Taxes

To discharge an income tax debt in a Chapter 7 case, it must meet these conditions:

1) 3 years since tax return due: The tax return for the pertinent tax must have been due more than three years before you file your Chapter 7 case. Also, if you requested any extensions for filing the applicable tax returns, add that extra time to this three-year period.

2) 2 years since tax return actually filed: Regardless when the tax return was due, you must have filed at least two years before your bankruptcy is filed in court.

3) 240 days since “assessment”: The taxing authority must have assessed the tax more than 240 days before the bankruptcy filing.

4) Fraudulent tax returns and tax evasion: You cannot file a “fraudulent return” or “willfully attempt in any manner to evade or defeat such tax.”

These four conditions and the procedure for utilizing them are a bit complicated.  Therefore, we advise that you retain an experienced bankruptcy attorney to assist you.