Penalty relief may be available to taxpayers who miss Sept. 15 tax deadline due to COVID-19

Accounting

The Sept. 15 tax filing deadline is causing worries among taxpayers and tax practitioners in the midst of the pandemic, but the American Institute of CPAs believes that taxpayers will be able to avoid tax penalties if they write “COVID-19” at the top of their tax return.

AICPA officials have had some conversations with IRS officials about penalty relief and been told informally that practitioners who have made a good-faith effort to meet the filing deadlines on behalf of their clients but are unable to do so because of the coronavirus pandemic can write “COVID-19” at the top of the tax return to indicate the need for penalty relief.

“Based on our conversations, the IRS does not want to penalize people who are making a good faith effort,” said Melanie Lauridsen, senior manager for tax policy and advocacy at the AICPA. “I think the IRS truly does understand that people are impacted by coronavirus, and unfortunately some people are impacted to the point where they just can’t meet the tax deadlines. They don’t want to penalize people who are really trying to do what’s right, trying to meet their compliance, but for whatever reason due to coronavirus they are unable to do so. I think the IRS wants to work with those people and not penalize them.”

She isn’t sure whether the IRS will offer formal relief or guidance, but she pointed to the other forms of disaster relief the IRS has offered in response to the pandemic as well as natural disasters.

“At any given point in time with disaster relief, it actually ties in with reasonable cause,” she said. “Whether a disaster is deemed to get an extension or not, there will always be people who can’t meet the deadlines and, under reasonable cause, they are able to work with the IRS to see if they can not be penalized. This is more in line with that.”

An IRS spokesperson contacted by Accounting Today pointed to the Penalty Relief Due to Reasonable Cause page on IRS.gov.

Lauridsen noted those reasonable cause provisions are also a part of the Internal Revenue Manual used by the IRS. “If you look at the reasonable cause standards, it’s very clear,” she said. “The reasonable cause standards are found within the IRM, which is the IRS’s Internal Revenue Manual, and in it they say that any matter that establishes a taxpayer exercised ordinary business care and prudence but that nevertheless failed to comply with the tax law may be considered for relief. So if that’s the case, and coronavirus is definitely something that is impacting millions of Americans, and the taxpayer is making a good faith effort, but they still failed to meet the tax laws, then yes, the IRS will work with them.”

She stressed, however, that it doesn’t offer a blanket excuse for everybody to claim. “Reasonable cause is not a blanket like, ‘Oh, hey, I’ve been a little stressed and I don’t feel like doing the tax return so therefore I’m going to fill out COVID-19.’ But if they are impacted by coronavirus, then yes the IRS will work with them,” said Lauridsen.

She believes this will help relieve some of the stress on taxpayers and practitioners. “When you talk with people who are devastated by coronavirus, it’s heartbreaking,” she said. “I spoke with one member who said it affected five or six people [in his office]. One of his staff got coronavirus and gave it to two or three other people within the office. Then on top of that the spouse of one of the partners or staff passed away during this whole thing. You’re looking at a business that is impacted at such deep levels. How can they manage? This is relief that is absolutely necessary. It’s not even relief to alleviate the burden. They’re working around the clock and there’s no way they can meet these deadlines.”

Taxpayers and firms who are filing electronically may need to check with their tax software provider to make sure they can add the COVID-19 note to the top of the form, It will probably be an option as the IRS has already allowed taxpayers to append that note as part of the relief it offered earlier during the pandemic, in connection with what was offered by the Federal Emergency Management Agency.

“With coronavirus, the relief was provided for the April to the July 15 deadline, so FEMA did put out COVID-19 relief already,” said Lauridsen. “I would recommend to the practitioners for whatever software you’re working with to give them a call, because some of the software companies are already coded for COVID-19, not specifically for this scenario. However if they connect with their software provider and their e-filer, they can get COVID-19 written at the top of the return, and that will indicate to the IRS that they do need some relief.”

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