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Tuesday, March 30, 2021

Temporary tax law changes should be EASY!

We are in tough times! The pandemic is in it's second year and the March 13, 2020 disaster declaration is still in effect. The American Rescue Plan Act of 2021 signed into law on March 11, 2021 is the 5th major piece of COVID-19 relief enacted since mid-March 2020. The tax changes in these laws are numerous and complex in terms of new definitions, special rules, confusing interaction with other rules, and being effective before IRS can get adequate guidance released.

The IRS could not even open the 2021 filing season until February 12 - later than usual. The IRS is still processing paper filed 2019 returns.

Practitioner groups (AICPA letters of 2/23 and 3/4 and 3/24), members of Congress (2/18) and others, asked the IRS to extend the April 15 due date for 2020 returns. After all, the Rescue Plan Act also made changes to 2020 returns including to those already filed (exclusion of up to $10,200 of unemployment compensation and exception to having to pay back any excess advance Premium Tax Credit). The IRS needed to update 2020 return processing to allow for these changes and to let individuals who had already filed and those who had not yet filed, know how to reflect these changes on their 2020 return or amended return. And these 2020 changes are complex! For example, the unemployment one also affects 8 other rules where modified AGI must be measured. This is time consuming for the IRS to create new instructions and reprogram its computers and for tax prep software companies to update their 2020 products.

On March 17 the IRS issued a news release saying that for individuals, the filing and payment deadline for 2020 Forms 1040 would be extended to May 17. This only applies to individuals and does not apply to the first quarter 2021 estimated tax payment due April 15. There were later calls by many for a broader and longer extension.

On March 29, the IRS issued another press release and Notice 2021-21 to clarify what it said on March 17. For example, the May 17 date is also the last day to make a contribution to an IRA or HSA and deduct it on the 2020 return. But, still no extension for entity returns due April 15 or the 1st quarter 2021 estimate due April 15. And no mention of the 1040 extension also extending the due date for gift tax returns even though they are the same as for Form 1040 (it seems the gift tax return date of 4/15 is not extended).

I think a lot of practitioner time was wasted and will continue to be wasted explaining this to clients and letting many clients know that much of the 2020 return needs to be completed to get a good estimate for the first quarter 2021 tax payment still due April 15.

So, wouldn't it have been easier for the IRS to just say: If the due date for a return or payment is April 15, it is extended to May 17, 2021?  Yes!

We need to encourage decisions, particularly those that don't involve a loss of revenue, to be implemented as simply as possible in order to reduce confusion and wasted time for taxpayers and their tax advisers (and not diminish respect for our tax system).

The IRS has authority under IRC Section 7508A to extend all items due April 15 to May 17 (or later).

What do you think?

1 comment:

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