Wealthy Win, Low-Wage Earners Lose in April 15 Tax Extension

(Bloomberg) -- Delaying the April 15 tax day was supposed to help millions of Americans weather the economic fallout from the coronavirus. But the extension is likely to give some wealthy taxpayers an interest-free loan on their tax bills and delay refunds for some low-income taxpayers.

The Internal Revenue Service said last month it will delay the tax filing deadline to July 15 to give households and companies more time to compile paperwork and ease cash flow concerns for those who have to cut a check to the agency. That’s more likely to help wealthier individuals who have complex financial situations, such as owning stakes in companies or investment funds.

“High income people will benefit,” said Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy. “Anyone selling a whole bunch of stock on which they had income tax withheld -- those people are getting a three-month interest free loan.”

Individuals who earn less, and whose income is principally from wages, might be eligible for a refund, but they could have trouble accessing that cash as social distancing makes it harder to consult low-budget tax advisers.

“Some low-income individuals are being hurt by this because they rely on volunteer tax prep clinics that aren’t available,” said Nicole Kaeding, an economist with the National Taxpayers Union. “Those who rely on those services are in populations more likely to get a refund.”

Deadline Confusion

The IRS had received nearly 91 million individual tax returns by the end of March. The agency expects to process more than 150 million returns this year.

Some taxpayers will still have to submit paperwork and payments to the IRS by April 15. Fiscal year-end companies filing under extension still have an April deadline, and non-profits will need to submit their paperwork by May 15. Estate tax returns -- due nine months after death -- and tax information for tax-deferred real estate deals, known as “like-kind exchanges,” haven’t been delayed.

Corporations, small companies and self-employed individuals will owe their second quarter estimated tax payments to the IRS on June 15. The agency pushed back the due date for the first quarter to July 15, creating a confusing outcome where the first quarter payments are due after the second quarter.

Ed Karl, vice president of taxation of the American Institute of CPAs, said these staggered dates will make for a complicated tax season.

“There needs to be a broad extension of filing and payment deadlines,” Karl said.

And many of those who want to file by April 15 can’t get the help they need because tax advisers are busy helping clients secure loans and other aid Congress made available last month to help businesses stay afloat during the pandemic.

The law made about $350 billion worth of loans available to small businesses, but concern that the money could run out has forced accountants to prioritize that over completing tax returns that could be finished by the regular April 15 deadline.

“I think this is the busiest busy season I can remember, and we’re not actually preparing any tax returns,” said Brian Streig, a tax director at Calhoun, Thomson + Matza in Austin, Texas. “It’s the people who are due a refund but need tax preparers to do their return that are at a disadvantage. All the attention is on small businesses trying to get loans.”

‘Shift to Digital’

Online tax preparation software companies -- such as Intuit Inc.’s TurboTax and H&R Block Inc. -- could also see more consumers opt to do their taxes online. For companies like H&R Block, that can lead to mixed results because the average customer spends more in-store, but the profit margins are larger for the online product, said Jeff Silber, a managing director at BMO Capital Markets.

“In online tax preparation, the big gorilla is Intuit,” said Hamzah Mazari, an analyst at Jeffries. “TurboTax is the biggest beneficiary of a shift to digital.”

Even with a three-month delay, some IRS employees aren’t sure the agency will be able to handle tax season this year. Eddie Walker, an IRS employee and president of the National Treasury Employees Union Chapter 247 in Austin, said his union has recommended extending the filing season another three months to Oct. 15.

Business groups, including the U.S. Chamber of Commerce and the American Institute of Certified Public Accountants, have also asked for longer extensions.

Part of the problem is that the IRS closed facilities and cut back operations in response to the virus, and many employees can’t do their jobs from home, Walker said.

July 15 is “not going to be sufficient to handle what’s coming at us,” he said.

The IRS has more than 45,000 of its approximately 80,000 employees working online with thousands more “mission-critical” employees continuing to work on-site with proper social distancing measures in place, according to an agency statement emailed Wednesday.

More than 20,000 employees have been placed temporarily on paid weather and safety leave, but the IRS “continues to make more employees telework-eligible on a daily basis as we continue to deliver laptops to people’s homes to enable them to work remotely,” the agency said.

Despite all the changes this year, accountants are still planning on one thing to remain consistent: procrastinators.

“Of course, people that usually come in the first week of April will come in the first week of July,” said Don Williamson, executive director of the Kogod Tax Center at American University.

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