Is It True That We All Can Stop Paying Taxes Until the Coronavirus Is Over?
Probably not. But it’s not an implausible argument. And Congress should act fast to fix an apparent glitch in the tax code
As the Wall Street Journal’s Richard Rubin reported this morning, a provision tucked into a December 2019 appropriations bill could mean that no one in the United States needs to pay any income, estate, gift, employment, or excise tax — or file any income, estate, gift, employment, or excise tax return — until 60 days after the covid-19 emergency is over. This is an important story and excellent reporting. The implication is not, though, that we all can stop paying taxes until the virus is gone.
To understand the controversy, it’s necessary to refer to the current text of I.R.C. § 7508A. (Warning: This all gets very lawyerly very fast.) Subsection (a) of that statute has been in place, with minor amendments, since 1997. It reads:
In the case of a taxpayer determined by the Secretary to be affected by a federally declared disaster . . . , the Secretary may specify a period of up to 1 year that may be disregarded in determining, under the internal revenue laws, in respect of any tax liability of such taxpayer —
(1) whether any of the acts described in paragraph (1) of section 7508(a) were performed within the time prescribed therefor . . . .
Paragraph (1) of section 7508(a) goes on to list almost all of the most important actions that a taxpayer could take, including “[f]iling any return of income, estate, gift, employment, or excise tax” and “[p]ayment of any income, estate, gift, employment, or excise tax.”
So far so good. The Treasury Secretary has discretion to push back any filing or payment deadline by up to one year for any taxpayer affected by a federally declared disaster. Secretary Mnuchin said this week that he would use that authority to allow taxpayers to defer payments up to a certain size ($1 million for individuals, $10 million for taxpayers) from April 15 to June 15.
The curveball comes in subsection (d), titled “Mandatory 60-day extension,” and added in appropriations legislation that President Trump signed into law this past December. It reads (in relevant part):
In the case of any qualified taxpayer, the period —
(A) beginning on the earliest incident date specified in the declaration to which the disaster area referred to in paragraph (2) relates, and
(B) ending on the date which is 60 days after the latest incident date so specified,
shall be disregarded in the same manner as a period specified under subsection (a).
“Qualified taxpayer” is then defined, in paragraph (2) of subsection (d), to include (among others) “any individual whose principal residence . . . is located in a disaster area.”
Last Friday, President Trump declared an emergency under the Stafford Act in every U.S. state. FEMA reports an “incident period” of “January 20, 2020 and continuing.” The IRS has said taken the position (in a publication rather than a Treasury regulation or revenue ruling) that “federally declared disaster” includes not only a “major disaster” under the Stafford Act but also an “emergency” under the Stafford Act. (Trump declared a Stafford Act “emergency” Friday but not a “major disaster” — more on that below.)
A straightforward reading of subsections (a) and (d) might thus suggest that for any qualified taxpayer, the deadline for any of the acts described in section 7508A(a) is delayed until the covid-19 emergency ends plus 60 more days. And since the entire nation is included within the emergency, that would mean that all U.S. residents are qualified taxpayers to whom the delay applies.
If so, the implications would be enormous. None of us would have to pay federal income, estate, gift, employment, or excise taxes or file returns with respect to those taxes until all this is all over.
Do Treasury and the IRS have any way out of this mess?
Yes. At least four.
One is to say that there is no “incident date” specified in President Trump’s Stafford Act emergency declaration for covid-19, and so no declaration that triggers subsection (d). The President does not include a date anywhere in his Friday declaration, other than the date at the top (“issued on March 13, 2020”) and a reference in text to “the date of this declaration.” Contrast that with, for example, his recent declaration of a Stafford Act major disaster for North Dakota: “I have determined that the damage in certain areas of the State of North Dakota resulting from flooding during the period of October 9 to October 26, 2019, is of sufficient severity and magnitude to warrant a major disaster declaration . . . .” To trigger the mandatory 60-day extension in section 7508A(d), the President must include a date somewhere in there (or so the argument goes).
But the Friday declaration does refer to “the date of this declaration” — and since that’s the latest date mentioned in the declaration, perhaps the 60-day clock ticks from then. If so, the fiscal implications of section 7508A(d) are less disastrous (no pun intended or achieved), though it still would mean that virtually every filing and payment deadline in the Internal Revenue Code is now pushed back for 60 days. Returns otherwise due on April 15, 2020, aren’t due until June 15, 2020; six-month extensions that would otherwise expire on October 15 last into mid-December. That would be tolerable, but it’s certainly not the result that Treasury wants.
A second is to say that there is no “disaster area” in Friday’s declaration, and so no one who is a “qualified taxpayer” for purposes of section 7508A(d). That’s not a crazy argument, but it has problems too. Friday’s declaration refers to a pandemic of “national size” and says that under the Stafford Act, “an emergency exists nationwide.” That sure sounds like a “disaster area” exists everywhere.
A third approach is to say that, notwithstanding the title of subsection (d) (“Mandatory 60-day extension”), the 60-day extension in subsection (d) is not automatic. All that subsection (d) does is to provide that the period from the first incident date to the last incident date plus 60 days is disregarded “in the same manner as a period specified under subsection (a).” In what “manner” is a period specified under subsection (a) “disregarded”? The Random House Unabridged Dictionary tells me that “manner” is a noun meaning “a way of doing, being done, or happening.” The way that a period under subsection (a) is disregarded is for the Secretary to specify that the period will be disregarded. So for subsection (d) to kick in, the Secretary needs to say so.
This surely isn’t what Representative Tom Rice of South Carolina, the author of the amendment that added the new subsection (d) to section 7508A, thought he was getting. Rice’s remarks regarding the amendment indicate that he thought that a 60-day extension would be automatic for qualified taxpayers, not dependent upon the discretion of the Secretary. But the unenacted intentions of a statutory drafter don’t control the legal result. And Rice’s use of the word “manner” leaves it ambiguous as to whether “manner” refers to the process by which a period becomes specified under subsection (a) or the consequences of disregarding a period under subsection (a).
Would this reading make subsection (d) superfluous? No. Subsection (d) allows the Secretary to delay payment and filing deadlines by more than a year for a disaster that lasts more than a year, whereas a discretionary delay under subsection (a) cannot extend longer than a year. (It would conflict with the heading of subsection (d) — “Mandatory 60-day extension.” But it is a familiar rule of statutory interpretation that headings do not “take the place of the detailed provisions of the text.”
Finally, Treasury could say that a Stafford Act emergency is not a “federally declared disaster” for purposes of section 7508A, which would make the argument about subsection (d) moot. The Stafford Act refers to “major disasters” and “emergencies”; the Internal Revenue Code refers to “federally declared disasters” determined by the President to warrant assistance under the Stafford Act; and it’s not clear whether “federally declared disaster” refers (1) only to major disasters or (2) both to major disasters and to emergencies. The IRS, as noted above, has chosen (2) so far, but it could switch to (1).
The problem with that position, though, is that Treasury already has invoked its authority under section 7508A(a) to delay certain payment deadlines from April 15 to June 15, which it could only do if the current Stafford Act emergency is a federally declared disaster. To say that the current emergency is a federally declared disaster for purposes of section 7508A(a) but is not a federally declared disaster for purposes of section 7508A(d) would be Treasury trying to have its cake and eat it too.
The easiest way out of all to get out of this mess would be for Congress to amend section 7508A(d) so that it explicitly does not apply to the current Stafford Act emergency. Without such an amendment, we’ll be hearing a lot from hucksters over the next several months who say that no one owes any taxes. (And perhaps “huckster” is too pejorative — it wouldn’t be an implausible argument.) The responsible thing to do would be for Congress to fix this once and for all in the next round of covid-19 relief legislation. Banking on Congress to act responsibly, though, isn’t always the best of bets.
