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2020 Tax Woes Likely to Haunt Practitioners Into Next Year

Posted on Nov. 5, 2020

For tax practitioners, the headaches wrought by this year’s shifting tax deadlines and COVID relief measures won’t end December 31.

Many of the tax relief provisions from this year’s coronavirus relief legislation will expire at the end of the year, but issues related to that relief will linger well into next year, practitioners agreed during a November 4 virtual seminar hosted by the East Bay Association of Enrolled Agents and the IRS.

Self-employed taxpayers who took advantage of relief like the Coronavirus Aid, Relief, and Economic Security Act’s (P.L. 116-136) deferral of the employer share of payroll taxes or the paid sick or family leave provisions in the Families First Coronavirus Response Act (P.L. 116-27) will have to deal with those provisions on their returns for tax year 2020 when they file next year, Annette Nellen of San Jose State University said. “Obviously, they’ve got some things to deal with,” she added.

The IRS will likely have to come up with guidance for taxpayers looking to claim some of the coronavirus relief tax benefits late, according to Nellen. For example, employers that kept employees on the payroll but didn’t actually pay them might realize that they should have been paying them sick leave, for which they could have received reimbursement. “I think those kinds of cases will linger,” she said.

There could also be more legislative activity, Nellen said. Lawmakers have proposed some bills affecting provisions like the employee retention tax credit that have an effective date going back to the start of the pandemic and related relief legislation in March, she said, and that means “going back and doing these calculations again, and then claiming an additional refundable credit.”

And of course, as taxpayers file their tax returns in 2021, there will be the normal IRS audit activity of the 2020 tax year, Nellen added.

Wishful Thinking

Practitioners on the seminar weren't bullish on the prospect that administrative expenses associated with applying for a Paycheck Protection Program loan would be deemed deductible, either by the IRS reversing course or by legislative action.

“I would be very surprised if Congress were to change that,” enrolled agent Alan Pinck said. “Congress would be foolish to say, ‘We’re going to give you a deductible loss’ . . . I personally don’t see that happening, but stranger things have happened.”

Lawmakers remain split on the question for now. IRS Notice 2020-32, 2020-21 IRB 837, prevents businesses from deducting expenses associated with their PPP loans, but some lawmakers believe it was the original intent of Congress that some expenses would be deductible.

The practitioners were also united in wishing that this year’s extended filing deadlines would come to an end.

“Tax season still hasn’t ended for us here in Santa Clara County [California]; we have until December 15 for the people dealing with the fires,” said enrolled agent Randy Warshawsky

Pinck said the only way he could see the IRS extending deadlines again is if COVID-19 cases spike and lockdowns begin anew. Absent that, “I do hope not,” he said.

As for whether the extended July 15 individual tax return filing deadline would become permanent, Nellen said it's unlikely, noting that the states would object that that “steps into their next fiscal year.”

Follow Jonathan Curry (@jtcurry005) on Twitter for real-time updates.

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