In Part 2 of our 3-part COVID-19 response video series, hear from Jason Peckham, Tax Guard’s VP of Resolutions, how IRS’s “People First Initiative” impacts small businesses and commercial lenders.
Update: On April 9, 2020, the IRS released Notice 2020-23, which broadened the relief for filing and paying income taxes. The following language for slide 6 is now more accurate. Income tax returns (calendar and fiscal) with an original due date between April 1 and July 15, 2020 can be postponed until July 15, 2020 without penalty. Estimated income tax payments with an original due date between April 1 and July 15, 2020 can be postponed until July 15, 2020 without penalty. As a reminder, the filing and paying delays still do not apply to employment or excise taxes.
To view Parts 1 & 3 of our COVID-3 Response Series check out our Tax Guard Resources. There you’ll also find our case studies, videos, and infographics!
Please contact us if you have any questions about how these changes at the IRS can affect your commercial lending organization.
Covid-19 Response Video Series – Part 2
Hello, my name is Jason Peckham, I am vice president of Resolutions with Tax Guard. I appreciate you joining us for our video today. I hope it finds you both healthy and safe. This is the second installment of our video series on the recent changes to federal payroll taxes. Those changes are a result of both legislation as well as the Internal Revenue Service’s own initiatives. Our second video in the series will relate to the IRS’s People First Initiative, and we’re going to give a little bit more detail before doing so little bit of background on Tax Guard.
We started the business back in 2009 and there’s two aspects of our service. On the one hand, we monitor tax compliance for businesses that borrow money from banks, asset based lenders and other lenders. The idea being the earlier we can identify an issue, the easier it is to resolve, the better the outcome, the more likely we are to preserve funding. On the back end, the second part of what we do is that when issues do arise, we can jump in and resolve them, usually through an installment agreement.
In another document called the Subordination of Federal Tax Lien. Currently, we work with about 400 different banks, asset based lenders and other lenders from across the country. Over the last 10 years, there are certain trends that have emerged over time based on our monitoring and reporting. Generally about one in five businesses owes money to the Internal Revenue Service and a good chunk of that debt is hidden, meaning there’s no federal tax lien filed.
So unless you are using our service, you wouldn’t have any insight into what’s going on. Unfortunately, given the current economic environment, I think both the number of businesses that are going to owe money to the Internal Revenue Service and the extent and sides of those liabilities are both going to increase, maybe substantially. Which goes back to the idea of monitoring. Reporting is going to be even more important moving forward in the future. In terms of the changes affecting payroll taxes over the last week or so, I’ve had a number of questions on these issues.
For example, I’ve heard payroll taxes don’t or sorry, other businesses don’t have to pay payroll taxes. Is that correct? And the answer to that question is there are some limitations. But again, they’re very limited. And these are the deferred payroll taxes from the CARES Act. Is the Internal Revenue Service really shut down for 90 days? And the answer to that question is, again, there are some limitations, but generally speaking, the Internal Revenue Service is up and running.
And what are these payroll tax credits we keep hearing about? Those stem from the CARES Act and the Family First Act. Again, this is a three video series. This is video number two. We’re going to be talking about the People’s First Initiative and the Internal Revenue Service in general. But I encourage you to check out the first and third videos in this series dealing with deferred payroll taxes, as well as the payroll tax credits. In terms of the People’s First Initiative, this was announced back on March 25th with the idea they would provide immediate relief to businesses, the Internal Revenue Service is essentially trying to do its part to help people out in this difficult time.
There’s a 90 day extension to file and pay levies and liens have been suspended through July 15th and payments on existing installment agreements are — sorry, suspended through July 15th as well. Essentially, the Internal Revenue Service has given a time out signal and saying we’re not going to do anything through July 15th. This is a little bit misleading, though, especially the way it’s been portrayed in the media. The 90 day extension to file and pay is limited, the delay through July 15th is limited to filing income tax returns, both business and individual. Paying estimated income tax payments that were due on April 15th, but doesn’t fit this criteria. There’s no extension. It’s another way to think of this is only returns in payments due April 15, 2020 are postponed until July 15th. Or another way to think of it is if the due date is anything other than April 15th, there is no postponement. Again, this is a very limited gesture from the Internal Revenue Service, and these extensions do not apply to employment or excise tax deposits.
If your client comes to you and says, I don’t have to pay my 941 return or file it until July 15th. That’s absolutely incorrect. Generally speaking, the collections division of the Internal Revenue Service is up and running. Now there are segments of the Internal Revenue Service that are shut down, at least temporarily. Call centers, for example, the service center, both of those entities within the Internal Revenue Service are definitely operating on a limited basis. Generally speaking, the Internal Revenue Service is up and running. Now they’ve indicated they’re not going to issue levies or federal tax liens through July 15th. So there is some relief. But the Internal Revenue Service, especially the collections division, they’re working from home. The people we work with, revenue officers, group managers, territory managers, advisors, they are working from home. They’re working cases, they’re gathering information. They’re doing pretty much everything but threatening to take and force collection. In many of these revenue officers already worked from home.
So they’re used to it. Now, me, I’m still trying to make adjustments, but the Internal Revenue Service, a lot of them are already ahead of the game. A good way to think about this is to compare what Tax Guard normally does with what we can still do today. So a month ago, when we were going to work a case, setting up an installment agreement and subordination, we’d obtain power of attorney, take over all communication, negotiate a hold on, enforced collection. Meaning that we go to the revenue officer proactively and say, don’t levy bank accounts or accounts receivable.
Give us 30 days to come up with the plan. We prepare that financial information, review options with our client. Once everybody’s on the same page, we submit the proposal and knock out the terms for the installment agreement on the back end we obtain the subordination if necessary. The only thing that’s different today is we don’t have to ask the Internal Revenue Service for a hold on collection. It’s automatically granted through July 15th. Otherwise everything else is exactly the same.
And this is a great time to resolve issues with the Internal Revenue Service because there is some flexibility. The last piece to the People First Initiative deals with the existing installment agreement payments, those existing installment agreement payments, so payments do between April one and July 15th are suspended, meaning the business does not have to make the payments over the next 90 days, give or take. Now, the Internal Revenue Service is not making the payments for the businesses. The businesses still need tack – or individuals as well.
But the individuals and businesses will need to tack these payments onto the end of the installment agreement. They’ll still have to pay them at some point, just not in the next three months or so. Unfortunately, this does not help businesses that were unable to make payments in March as a result of the payment was missed. That business, that individual installment agreement is probably going to default and there’s a good chance it can terminate. Which means we want to address that issue quickly.
Why are we asking about all these, you know, issues in terms of filing and paying? Well, it comes down to installment agreements for an installment agreement in the first place or to maintain good standing. There can be no liabilities outside the installment agreement. Another way to think about that is the business has to make its federal tax deposits in full and on time. There can be no missing returns. And all of the installment payments need to be made in full and on time.
Over the next 90, 180 days, a year or two years, we’re going to see a lot more liabilities in general. Additionally, in the short term, we’re going to see a lot of ins— sorry, a lot of liabilities that are outside the installment agreement. These are issues that will either prevent installment agreements from being secured in the first place or create the need for an installment agreement. Or if there is an existing installment agreement, it’ll need to be fixed.
Generally speaking, we need to be proactive during this period of time, the earlier an issue is identified, the easier it is to resolve, the better the outcome, the more likely we are to come up with a successful outcome that works for everybody, where we can preserve the funding relationship.
These issues are going to come to us very quickly. They’re going to be quite a few of them moving forward. And you’re going to have a lot of questions, both in terms of, general, what’s going on with the Internal Revenue Service and how does this impact my client directly? When you have those questions, reach out to Tax Guard. That is exactly what we’re here for. So, again, thank you for joining us for our video today.
Again, I would encourage you to check out our first and third videos in this series on the deferred payroll tax piece, as well as the payroll tax credits. And we look forward to hearing from you in the future.