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Wrapping Up 2020: Tax Practitioners Weather the Coronavirus Pandemic

Posted on Dec. 21, 2020

This has been a year like no other. Tax practitioners across the country found themselves helping clients navigate the economic repercussions and frequently changing legal landscape of the coronavirus pandemic, and they have had to guide their own practices safely through a tumultuous time.

The fallout from the pandemic affected nearly every aspect of tax law. From filing deadline delays to closed courtrooms, the themes were constant change and uncertainty. Even for firms with the technical infrastructure in place to quickly move to remote work, it was a year full of challenges, said Beverly Winstead of the Law Office of Beverly Winstead LLC.

On the whole, tax practitioners were well situated to make the rapid shift to remote work that proved more difficult for other industries, although the immediate transition to virtual practice wasn’t without its share of challenges. Despite all the uncertainty, delays, and new rules and procedures that the pandemic and the ensuing legislative response prompted, however, tax practice continued without too much disruption, thanks to the quick adoption of additional technology that made almost entirely remote lawyering and accounting possible.

The cooperation of dedicated government officials helped immensely, even if the guidance wasn’t always exactly what taxpayers hoped for. “The congressional staff, Treasury, and the IRS have been unbelievably accommodating,” said Marc J. Gerson of Miller & Chevalier Chtd. He said the efforts of government officials to make themselves available and solicit feedback and ideas were commendable, and that the focus on the practical issue of implementation was the right approach for the government to take.

Both the Families First Coronavirus Response Act (P.L. 116-127) and the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136) were passed by Congress and signed by President Trump in March, and their implementation predominated in many practices for the rest of the year. The laws provided for payroll tax credits for qualified sick and family leave wages, economic impact payments, changes to the charitable contribution deduction, and the employee retention credit. Although practitioners have plenty of experience in quickly assimilating significant legislative changes and regulatory guidance — having recently dealt with the many changes in the Tax Cuts and Jobs Act — the laws made in response to the pandemic were qualitatively different because of the urgency and stressful environment in which they were passed.

Pan-Practice-Area Lawyering

The Families First and CARES acts resulted in tax lawyers working with nontax colleagues more frequently than they had before, and firms set up multidisciplinary response teams to help address clients’ evolving situations and the different areas of law implicated by the statutory changes. “This is the first time I had ever worked directly with labor lawyers in evaluating what I viewed as a tax statute,” said Wayne D. Roberts of Bodman PLC. He added that the multidisciplinary aspect of the Families First and CARES acts was different from previous tax law changes, under which he typically worked with other tax colleagues with different specialties but had rarely put together teams that included nontax lawyers. “I would get a referral to handle a call because the question was perceived to be about tax, and I learned a great deal about labor, employment, and related areas because there was so much overlap,” he said.

Mary J. Streitz of Dorsey & Whitney LLP said her firm had a response team that included lawyers specializing in finance, labor and employment, government contracts, small business, and American Indian affairs, among other areas. She said the immediacy of the Families First and CARES acts’ rules necessitated working together with lawyers in other practice areas because clients were dealing with contemporaneous furloughs and sick leave and needed to know how the tax credits worked. This was different from the process of guiding clients through the TCJA because there was more time to try to absorb those changes before taxpayers began filing returns, she noted.

Steering the USS IRS

The IRS and Treasury performed the largest feat of organization in the tax world during the COVID-19 crisis, and practitioners generally agreed that it was a job well done under the circumstances. Abbey B. Garber of Thompson & Knight LLP said IRS employees were swamped in the spring and summer with filing season and then the distribution of stimulus payments. They have remained so busy that they were still returning calls at 6 p.m. the night before Thanksgiving, he said.

As IRS Commissioner Charles Rettig pointed out, “We serve and interact with more Americans than any other public or private organization.” Not everything went smoothly, and the IRS is still working through a backlog of mail and cases, but the agency’s response and the individual efforts of IRS and Treasury officials to make themselves available won praise from practitioners.

The effects of the pandemic hit the IRS in early March when it suspended all nonessential travel for 30 days, but quickly escalated to a major reduction in operations. The agency closed offices nationwide and moved a record number of employees to remote work.

In response to the urgent need for guidance on the Families First and CARES acts, the IRS issued an avalanche of pandemic-related FAQs, which practitioners said were appreciated but also created difficulties in advising clients because of the sometimes-changing rules. “I think they came out with [the FAQs] really fast, and that was impressive,” Streitz said. She said some of the positions taken in them were surprising, but that the speed with which the IRS addressed questions was helpful.

Later in the summer, lawsuits over the FAQs started — a new wrinkle for the IRS. In Scholl v. Mnuchin, No. 4:20-cv-05309 (N.D. Cal. 2020), the IRS faced an Administrative Procedure Act challenge because of its denial of economic impact payments to prisoners. The case is on appeal to the Ninth Circuit.

Zoom, Zoom!

This was the year we learned that the vision in the opening credits of The Brady Bunch was ahead of its time. The public health measures necessitated by the pandemic massively accelerated the adoption of remote and virtual technology for business meetings, court sessions, and public hearings, which affected nearly every aspect of tax practice.

Client meetings, conferences, and Tax Court trials became a collection of little rectangles populated by one’s associates and, sometimes, adversaries. Everyone got to evaluate their colleagues’ ceilings, and no one wore shoes to meetings. There were plenty of hiccups during the fast pivot to exclusively virtual meetings, but the transition has happened, and its impact will be felt even after the pandemic subsides.

The nearly overnight change in the amount of public access to official proceedings was remarkable. The Tax Court held its first virtual trial session in September, and the IRS and Treasury held their public hearings on notices of proposed rulemaking telephonically (Announcement 2020-4, 2020-17 IRB 667).

Remote hearings effectively opened up the hearing process to participants from a wider geographical area, and that should be continued even after the public health crisis ends. A glance at the witness lists for the handful of hearings held via telephone this year suggests that many of the witnesses would have made the trip to an in-person hearing, but those hearings were on projects that began before the pandemic. It may take time for taxpayers and practitioners who wouldn’t previously have thought the costs of travel to Washington were worthwhile to begin participating in hearings through the new remote option. Certainly, the option for them to listen to the hearings as they occur is a positive.

For practitioners, the rapid shift to remote lawyering required flexibility and more time spent adapting to new technology. Winstead’s firm kicked off 2020 with new investments in technology that quickly paid dividends when her team had to move to remote work. “I feel that saved us,” she said. Winstead has also found herself teaching her law students at the University of Maryland remotely for the past two semesters.

When some volunteer income tax assistance sites closed their in-person assistance functions, taxpayers struggled to find free return filing help and turned to the low-income taxpayer clinic where Winstead teaches. With her students and in her private practice, Winstead helped taxpayers file their 2018 and 2019 tax returns so that they could receive their economic impact payments.

Bar associations across the country canceled in-person meetings, but they helped practitioners learn about the rapidly changing laws and navigate the new landscape with virtual meetings addressing novel twists on best practices. The virtual presentations found audiences eager to learn about the pandemic relief rules.

Roberts said his first presentation via Zoom in April on the Paycheck Protection Program was watched by a surprisingly large number of State Bar of Michigan members looking for information on the new rules. He added that the ambiguity and urgency of the Families First and CARES acts, as well as the heavy use of FAQs by the IRS, made the task of sorting through the changes notably different from that under other big legislative changes.

Although practitioner-led webcasts have long been a source of continuing education, the number of online offerings exploded in the spring and early summer as practitioners sought ways to help guide clients through the new tax laws. Streitz said adoption of online means of connecting with clients distinguished this year from prior years of major legislative changes. An early web-based information session she and others in her firm conducted days after the CARES Act passed had a huge number of viewers, and the virtual sessions led to follow-up conversations with clients. In contrast, after the passage of the TCJA, Streitz and her colleagues did most of their presentations to clients in the office.

In a year of many novel challenges, gains, and successes, an aspect of tax practice was lost this year too. Because tax practice is fundamentally a service business, the complete absence of in-person communication with clients and government officials was a notable change. Virtual meetings and court proceedings are now clearly an option, and often a good one when travel is expensive or difficult, but practitioners said the missing intangibles inherent in in-person communication are a part of practice that they’d like to see restored when possible.

Streitz advises American Indian tribes around the country on tax matters and often advised long-distance clients on the phone before the pandemic, so the transition to fully remote advising wasn’t a major change for her or her clients. However, she said in-person communication is especially important in situations like nonprofit board meetings, at which deliberating together is qualitatively different from meeting via Zoom. Garber agreed that there are parts of the newly all-virtual practice environment that should be kept for the sake of efficiency after in-person meetings resume, but that some discussions are better handled in person.

Dealing With Delays

The deadline-driven nature of tax practice was shaken up by the pandemic. For the first time in years, Treasury postponed the April 15 filing deadline to July 15 for individuals and extended other deadlines. Because of office closures and reopenings, many other aspects of practice were paused as well. The government has experienced intermittent closures in recent memory under budget-related shutdowns, but none were quite as long or involved the same public health considerations.

Audits that started before the pandemic went dark for a while, but the IRS picked back up via telephone where it left off, Streitz said. Like many other courtrooms around the nation, the Tax Court’s closed because of the pandemic, resulting in delays in court proceedings. In early March the Tax Court began limiting the number of people allowed in a courtroom at one time, and soon canceled the remainder of its March and April trial sessions. The court turned to virtual trials in September.

Tax Court Trials Go Virtual

Much tax controversy work came to an abrupt halt for a few months this year when the IRS and Tax Court mostly closed their doors. There was understandably little or no communication from the IRS, and practitioners with cases headed to the Tax Court had to navigate unique problems in proving they’d filed when mail sat unopened or private delivery services returned documents, because the deadline for Tax Court is jurisdictional. “Everybody is underwater and doing the best they can,” Garber said.

For the Tax Court, reopening meant moving to virtual hearings and trials. The first trials on Zoom were held this summer, and virtual trials became more common in the fall. “They’ve worked better than many would have expected,” Garber said. Conducting a trial remotely creates plenty of new wrinkles, and careful preparation for the virtual environment is key, but Garber said it’s a great addition overall. “It’s something we couldn’t have done even 20 years ago, but it’s wonderful that now it’s in the court’s arsenal,” he said.

Whether virtual hearings will be a routine option for taxpayers after the pandemic is still unknown, but continuing them on a limited basis would likely be helpful for the court, taxpayers, and practitioners. The court already visits many cities around the country, but even so, some taxpayers travel hundreds of miles. “If you’ve got a taxpayer with a fairly straightforward case and they’re not close to a place of trial, it makes perfect sense for them to do it virtually,” Garber said. Tax Court judges would be able to handle their docket more efficiently if some of their cases were conducted virtually.

Eliminating travel time and related expenses when appropriate can yield large benefits for taxpayers and practitioners. Garber said a recent virtual IRS settlement day was a big success. Members of the State Bar of Texas tax section from multiple cities assisted taxpayers without traveling, which resulted in the efficient resolution of more cases. “They were all on [Zoom] together from different locations helping to reach the right answer,” Garber said.

Backlogs and Unanswered Phones

The IRS receives 400,000 to 500,000 pieces of mail per week, according to Rettig, and that meant a huge backlog of unopened mail when the IRS’s four receiving facilities shut down in response to the pandemic. (Prior coverage: Tax Notes Federal, Dec. 7, 2020, p. 1678.) More than 23 million pieces of mail were unopened in July, but by November the agency had winnowed that down to fewer than 3 million unopened pieces of mail. The backlog took a toll on taxpayers. Winstead said some clients were still waiting on a response to returns that had been mailed much earlier in the year.

The IRS’s toll-free phone lines and taxpayer assistance centers were closed as well, and that sometimes left taxpayers in the dark. Winstead said she received calls from taxpayers who had been trying to call the IRS or the Taxpayer Advocate Service but hadn’t been able to get through. She said the situation was similar to the government shutdown in 2018, which also necessitated IRS recovery time. This time, however, the IRS dramatically expanded the number of employees who were eligible to telework, including thousands of customer service representatives, in an effort to resume phone assistance.

Moving On From Annus Horribilis

Winstead said that although 2020 has been an unusually challenging year for tax lawyers, “I feel like everybody has really tried to work together to deal with the hand we were dealt.” She said she particularly appreciated the IRS’s willingness to be flexible with taxpayers and its understanding that the pandemic’s effects are ongoing. Rettig said on November 20 that one of the IRS’s current goals is “removing bureaucratic barriers and expanding flexibilities to all taxpayers whose financial condition has been affected by COVID-19.”

Roberts agreed that given all that was on the IRS and Treasury’s plate, they did a good job of providing timely guidance, even though it sometimes had to be released at inopportune times, like 4 p.m. on a Friday. He added that past visits of IRS and Treasury officials to state bar association meetings were a particularly helpful practice, and that ensuring that those lines of communication are open is important in situations like the one this year. Roberts said it would be helpful for the Office of Chief Counsel and Treasury to consider expanding their approach to working with the state bars because that contact with government officials is beneficial.

Gerson said he expects the transition back to in-person meetings to be long for both tax policy discussions with congressional staff and bar association conferences. The pre-pandemic default of in-person meetings on Capitol Hill will probably change even once face-to-face meetings can resume. He said clients who are out of town might be more likely in the future to consider virtual meetings because of budgetary constraints and the now nearly universal experience of widespread virtual communication.

The ramifications of the pandemic for regulatory guidance will continue to be felt after the Families First and CARES acts are fully implemented, because those sudden projects temporarily moved other guidance projects down the list of priorities for the IRS and Treasury. “There’s a building backlog of other guidance that both taxpayers and the government are interested in,” Gerson said. He pointed to the projects on the priority guidance plan that have been delayed for several years so that other, more immediate guidance needs could be addressed. At some point during the resumption of more regular operations, those projects will get increased attention.

The uncertainty and urgency of the pandemic have had many effects on tax practice around the country, but practitioners and the government have weathered the crisis thanks to technology that made remote work possible, even when the transition wasn’t always smooth. “The change wasn’t as dramatic as it would have been in the past,” Garber said. “But it was still pretty wild.”

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