The IRS issued Notice 2019-17 today, providing relief from the Addition to Tax for Underpayment of Estimated Income Tax by Farmers and Fishermen. Generally, taxpayers are required to pay federal income taxes through withholding or quarterly estimated tax payments as they earn income. Internal Revenue Code (IRC) Section 6654(a) provides for an addition to tax for individual taxpayers who fail to make sufficient and timely payment of estimated income tax. However, qualifying farmers and fishermen are subject to special rules requiring them to make only one installment payment, which is due on January 15 of the year following the taxable year.
Who is a qualifying farmer or fisherman, and why is the distinction important?
A taxpayer qualifies as a qualifying farmer or fisherman for the 2018 tax year if at least two-thirds of the taxpayer’s total gross income was from farming or fishing in either 2017 or 2018. Qualifying farmers and fishermen are not subject to the addition to tax for failing to make the required estimate on January 15 if they file their returns and pay the full amount of tax reported on the return as payable by March 1, 2019. See IRC Section 6654(i)(1)(D).
Why was the deadline extended?
Because of complications related to the new rules under the Tax Cuts and Jobs Act, the IRS anticipates that farmers and fishermen may have difficulty in accurately determining and paying their liability for the 2018 tax year by March 1, 2019.
What do you need to do?
If you are a qualifying farmer or fisherman, you need to file your 2018 income tax return and pay in full any tax due by April 15, 2019 (or April 17, 2019, for taxpayers who live in Maine or Massachusetts). Taxpayers requesting this waiver must attach Form 2210-F, Underpayment of Estimated Tax by Farmers and Fishermen, to their 2018 tax return. The form can be submitted electronically or on paper, and the waiver box (Part I, Box A) should be checked.
Continued added complexity in the tax law makes complying with the March 1 deadline increasingly difficult. Farmers should consider making a January 15 estimated tax payment rather than relying on filing and paying by March 1 each year. In many cases, all information necessary to file a complete and accurate return is not issued in a timely enough manner for the deadline to be met. Attempts to meet the deadline often result in errors and added frustration — and sometimes the need to amend tax returns.
This is welcome relief for farmers and tax professionals alike! If you have questions related to the extension mentioned above, please reach out to your Wipfli relationship executive.