Thursday, April 9, 2020

COVID-19 ECONOMIC IMPACT PAYMENT: WHAT IF YOU ARE A DELINQUENT NON FILER?

On March 30, 2020, the IRS announced that distribution of economic impact payments will begin in the next three weeks and will be distributed automatically, with no action required for most people.

Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples and up to $500 for each qualifying child, according to the announcement.

According to the announcement, tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible. Social Security recipients and railroad retirees who are otherwise not required to file a tax return are also eligible and will not be required to file a return.

In an effort to make obtaining the relief payment as seamless and quick as possible, in the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to waiting for checks to arrive in the mail.

The vast majority of people do not need to take any action, the IRS advises. The Service will calculate and automatically send the economic impact payment to those eligible.

The IRS release continues, for people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The economic impact payment will be deposited directly into the same banking account reflected on the return filed. This may pose a problem for those who filed a joint return with a spouse, but have since divorced as one spouse ends up with the entire economic impact payment.

In a statement issued the day after the IRS announcement, the Treasury Department clarified that Social Security beneficiaries who are not typically required to file tax returns will not have to file. Instead, payments will be automatically deposited into their bank accounts.

Economic Impact Payments, part of the recently enacted  COVID-19 relief legislation, is clearly a logical way for the  government to get cash quickly into the hands of people who are just trying to survive, as well as to keep the economy alive during these troubled times.

What about Tax Filing Delinquents: A Trap for the Unwary?

One of the underlying assumptions of the EIP Program is that in large part, it assumes most people have been dutifully filing tax returns every year. Again, the IRS announcement offers guidance for those who have yet to file 2019 returns, and even those who haven’t even filed for 2018, but what if a taxpayer hasn’t filed for years?

The announcement urges people who have yet to file for 2018 or 2019, “to file as soon as they can.” Easy to say, but for some, there may be cause to consult with a tax professional before jumping in.  What the announcement does not say is “just go ahead and file something.” Taxpayers should take care to ensure tax returns are complete and accurate when presented to the IRS for filing. For those that sloppily file to get the economic impact payment can expect normal audit selections procedures to apply. For those that haven’t fulfilled the filing requirement for multiple years, the IRS may rightfully query why prior years are unfiled. Was it willful? Was there illegal source income?

Obviously, for some, participating in the EIP Program is not risk free. Nowhere has the Service indicated that filing for 2018 or 2019 will not lead to an audit. In some cases, a taxpayer may be well-advised to consult with tax counsel before a hastily made move results in an unwary taxpayer getting a lot more than he asks for.