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Important Tax Updates – COVID-19 Edition

March 28, 2020Client Alert

Updated as of March 28, 2020 at 12:00 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

On Friday, March 20, 2020, the IRS released updated guidance, confirming Secretary Mnuchin’s statements from earlier in the day that the April 15, 2020, federal income tax filing and payment deadlines have been extended to July 15, 2020. In addition, the guidance makes clear that (1) these extensions apply to all taxpayers, (2) the “cap” on the amount of the payment deferral in the prior IRS announcement has been removed and (3) the relief applies to a taxpayer’s 2019 income taxes as well as estimated income tax payments for the 2020 tax year that would have been due on April 15, 2020. The notice applies to federal income and self-employment taxes only, and does not affect the filing of returns and payment of other taxes. However, the second installment of estimated income and self-employment taxes for 2020 remains June 15, 2020.  After the formal release of the IRS guidance, a number of States followed suit by extending filing and payment deadlines—which California had already done earlier in the week.

Federal Estate Gift and Generation-Skipping Transfer Taxes

On Friday, March 27, 2020, the IRS released updated guidance, deferring the filing of Gift and Generation-Skipping Transfer Tax Returns (Form 709) and the payment of any tax with respect thereto from April 15, 2020, to July 15, 2020. This new guidance extends the deadlines for the gift and generation-skipping transfer tax returns and taxes so that they are the same as the income tax deadlines that were extended last week – see above.

As yet, no extension of time to file estate tax returns or pay estate taxes has been granted by the IRS.  The requirement to file an estate tax return and pay estate taxes on the nine-month anniversary of a decedent’s death remains in place. A six-month extension to file is available, but payment remains due by the nine-month anniversary of the decedent’s death.

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.