On March 30, 2020, the Louisiana Department of Revenue (“DOR”) issued Revenue Ruling 20-002 regarding, among other things, the first and second quarter filing and payment deadline for individual estimated income tax payments. Generally, this applies to individuals who are self-employed, independent contractors, partners, or sole-proprietorships. The first quarter deadline for filing and making an individual estimated tax payment is on or before April 15, 2020; the second quarter deadline is on or before June 15, 2020. If an individual is required to declare and pay estimated taxes quarterly but fails to do so, the DOR assess an “underpayment of estimated tax” (“UET”) penalty to the liability as calculated in accordance with La. Rev. Stat. §47:118A.
There is no basis in Louisiana law to allow the Secretary of Revenue to extend the deadlines to pay individual estimated taxes. As such, all taxpayers who are required to make estimated, individual payments in Louisiana must still do so. However, the Secretary does have the ability to waive the imposition of the UET penalty if: 1) the taxpayer requests a waiver by May 17, 2022; and, 2) the taxpayer has acted in good faith in failing to make the estimated payments. The Secretary is legally allowed to presume good faith on behalf of the taxpayer if the failure to pay the estimated payments was a result of extraordinary circumstances beyond the taxpayer’s control.
To that end, the DOR has determined that the situation presented by COVID-19 essentially constitutes such an extraordinary circumstance. The DOR will find that a taxpayer has acted in good faith if:
- the taxpayer makes and pays the April and June 15, 2020 estimated payments timely;
- the amount paid on April 15, 2020 is at least 90% of the taxpayer’s April 15, 2019 payment; and,
- the amount paid on June 15, 2020 is at least 90% of the taxpayer’s June 15, 2019 payment.
Accordingly, if the above conditions are met, and if the taxpayer timely requests the waiver, the 20-002 Revenue Ruling provides that the DOR will waive any corresponding UTE.
Unfortunately for the Louisiana taxpayer required to pay estimated individual returns, this Revenue Ruling does not provide significant relief, since payments are still required. However, it does allow for at least a 10% break, based on your prior year’s tax liability. Normally, to avoid the imposition of a penalty, you can either pay: 1) 100% of your prior year’s tax liability for the same period; or, 2) 90% of your annualized estimated income for the current year for the taxable period.[1]
The Revenue Ruling also provides additional guidance relating to pass-through tax entities and the transfer of credits. The full text of Revenue Ruling 20-002 can be found here.
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[1] Additionally, there is a safe harbor provision that prevents the imposition of penalties if the taxpayer pays 110% of the prior year’s tax liability. The safe harbor provision is only relevant if there is a substantial increase between your current year and prior year income.