International Tax Updates in Response to the COVID-19 Emergency
It has been a tumultuous few weeks for the United States (and around the world) as we continue to deal with the ongoing COVID-19 emergency. There have been many questions from taxpayers who are wondering how to move forward, specifically regarding how and when to file their 2019 tax returns.
In response to this uncertainty, the Treasury Department and Internal Revenue Service (IRS) recently issued Notice 2020-18 to provide guidance around special Federal income tax return filing and payment relief. This notice was in response to the emergency declaration issued by President Trump, which ordered the Secretary of the Treasury to provide relief related to the upcoming tax deadline in order to help Americans that have been adversely impacted by the COVID-19 emergency. The Secretary of the Treasury proceeded to change the due date for filing Federal income tax returns and moved the due date for Federal income tax payments from April 15, 2020 to July 15, 2020. This is not an extension – it is a change to the original due date.
While this change is a welcome and helpful respite, it continues to cause uncertainty for those that have international filing obligations. The IRS has addressed some of those concerns in a Filing and Payment Deadlines Questions and Answers page, which is continually updated.
One major concern that was resolved relates to individuals that made a Section 965(h) installment election in 2017 or 2018 to pay their Section 965 transition tax over eight years. Under the old rules, an installment payment needed to be made by the due date of the taxpayer’s return (without extension) in order for the installment election to remain in effect. As a result of the authority exercised by the Secretary of the Treasury, the original due date of a taxpayer’s return was actually changed to July 15 and thus the 2019 Section 965(h) installment payment for anyone that had a payment due originally on April 15 is now due July 15. However, this does not impact anyone who had an installment payment due on March 15 or has a payment due on any date other than April 15.
Additionally, it is important to understand that the Report of Foreign Bank and Financial Accounts (FBAR) has a fixed due date of April 15. While this date was changed to more closely align with the Federal income tax return due date, it is not specifically tied to the filing of an income tax return. However, the regulatory body — the Financial Criminal Enforcement Network — has granted an automatic extension to Oct. 15 for all taxpayers annually (which is the general rule and not specific to COVID-19). No action is needed to get the FBAR extension as it is automatic.
There is still plenty of remaining uncertainty which we hope will be clarified in the coming days, including, but not limited to, the following:
- Do people outside the country still get an automatic two-month extension?
- Will second quarter estimated payments be due before first quarter estimated payments for calendar-year filers?
- What is the due date for foreign information returns that are normally filed with the federal income tax return?
- How will the IRS deal with residency issues for people that are stuck in the U.S. as a result of closed borders and who may now meet the substantial presence tests?
- What is the impact on remitting withholding under Section 1441? Have the timelines been extended related to that remittance?
This is a new and developing situation and we expect to receive significant additional guidance over the coming days and weeks and will provide updates on our website. In the meantime, please reach out to a KSM advisor with questions, comments, or concerns or complete this form.
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