Marc M. Stern

Partner
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Important Tax Updates – COVID-19 Edition

April 10, 2020Client Alert

Updated as of April 10, 2020 at 5:00 p.m.

We hope that you, your family and loved ones are safe and well during this challenging time and wish you continued health as we all face the Coronavirus (COVID-19) pandemic and adjust to the impact it has had on our lives in such a short time.

Over the last few weeks, various taxing authorities have issued guidance alleviating several of the annual upcoming deadlines and provided additional useful tax planning information. The guidance is changing almost daily, and we will continue to update you as more information becomes available.

Federal Income Taxes

Although it has occurred sporadically – Notice 20-17 on March 18Notice 20-18 on March 21Notice 20-20 on March 27 – the IRS has finally issued comprehensive (almost) guidance in Notice 20-23 on April 9 providing for the delay of federal tax filings and federal tax payments for the period from April 1, 2020, through July 15, 2020. Read more about the latest IRS notice here >>

Federal Estate, Gift and Generation-Skipping Transfer Taxes

On Thursday, April 9, 2020, the IRS released updated guidance, deferring the filing of all Estate and Generation-Skipping Transfer Tax Returns (Form 706, Form 706-GS(T), etc.) and the payment of any tax with respect thereto that would otherwise have been due on or after April 1, 2020, and before July 15, 2020, until July 15, 2020.  The extension also applies to the Form 8971 basis consistency filings due in connection with the filing of Estate Tax Returns.  Additionally, all installment payments of interest and principal on estate tax deferred under IRC Sections 6166, 6161 and 6163, due on or after April 1, 2020, and before July 15, 2020, have been deferred until July 15, 2020These extensions are automatic and no extension forms or other filings are required.

California Income Taxes

On March 18, 2020, the California Franchise Tax Board (the “FTB”) announced an extension of time to file and pay until July 15, 2020, for all tax filings and payments for California taxpayers, including individuals and business entities (such as corporations, S-corporations, partnerships and LLCs) affected by the COVID-19 pandemic. This further extends the June 15 extension that had been granted on March 13.

  • Individuals, whose tax returns and estimated taxes are ordinarily due on April 15 have an extension until July 15 to file and pay their taxes.
  • Partnerships and LLCs taxed as partnerships, whose tax returns were due on March 15, have an extension to file and pay by July 15.

California Real Property Taxes

At this time, there has been no extension of the payment dates for California real property taxes.

  • The second installment of the 2019-20 property taxes (due February 1, 2020) is considered delinquent if payment is not received or postmarked by April 10, 2020.
  • Untimely payments result in a penalty equal to 10% of the delinquent taxes, with the penalties increasing if the delinquency is not paid by June 30, 2020.
  • In-person payments are currently not being accepted as a result of County building shutdowns. The following payment methods are available:
    • Payment by check postmarked on or before April 10, 2020.
    • Payment online by e-check on or before April 10, 2020.
    • Payment by using a credit/debit card online or by phone (a 2.25% service fee is also charged) on or before April 10, 2020.
  • Online e-check payments cannot be pre-scheduled in advance. Checks are cashed when received, and credit/debit payments are immediate.
  • In Los Angeles County, property owners unable to pay their property taxes on time for reasons related to COVID-19 may submit a request for penalty cancellation online beginning April 11, 2020.
  • Click here for a full list of Tax Collectors by County and links to their payment pages.

Interest Rates

On March 18, 2020, the United States Treasury Department released the minimum interest rates for various transactions, including certain transfer tax techniques, completed in April 2020. While these rates impact a variety of transactions, they are especially important for intra-family loans, whether existing or new, financed intra-family sale transactions, including those involving irrevocable grantor trusts, grantor retained annuity trusts and charitable lead trusts.

Minimum Required Interest

Discount Rate

3-year note

3-9 year note

9+ year note

April

1.20%

0.91%

0.99%

1.43%

March

1.80%

1.49%

1.52%

1.92%

February

2.20%

1.58%

1.74%

2.14%

The transfer tax benefits offered by the lower rates will be enhanced if property with a currently depressed value is made a part of the transaction. While the lower rates are beneficial for the transactions noted above, the lower rates adversely affect other techniques, such as qualified personal residence trusts and charitable remainder trusts.

In order to utilize the April rates, the transaction must be completed during the month of April 2020. As a result, clients may wish to consider an April closing date for pending gift, intra-family loan and intra-family sale transactions to take advantage of the recent rate decrease. It is possible that the Treasury Department interest rates for May 2020 will be the same or lower than the April rates. Because the May rates should be published at least one week before the end of April, the completion of any transaction planned or developed for April can often easily be deferred until May, if it is advantageous to do so.

For more information on the above guidance, please contact a member of Greenberg Glusker’s Private Client Services Group.

For additional updates by Greenberg Glusker regarding the impact of COVID-19 on employment, business and other sectors, please access Greenberg Glusker’s Coronavirus Resource Center.