Business of Tax: The Strangest Filing Season in Memory
Most tax professionals expect to be in a mad rush to finish their clients’ returns the week before the normal April 15 filing deadline. This year, things are different — a lot different.
From tax professionals at national accounting firms to the solo practitioner, the 2020 filing season is without precedent. In addition to a global pandemic that has upended daily life, practitioners are grappling with shifting tax deadlines, trying to understand and communicate to clients the key elements of massive new legislation, and in some cases, stepping into unfamiliar territory to offer loan advice.
“These are strange and trying times,” said Jeffrey A. Porter of Porter & Associates CPAs, who is in his 41st year as a CPA. “It’s like nothing I’ve ever seen.”
A Different Hat
It’s the peak of tax season, but many tax professionals aren’t filing a lot of returns.
Porter and countless others are instead finding themselves immersed in the strange new world of loans ushered in by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), which provides for up to $349 billion in forgivable loans to small businesses.
“Last week and this week should be the busiest weeks of tax season, and that ain’t happening,” Porter said. “At this point, I’m lucky if I get one, maybe two tax returns completed a day. I can’t get more than five minutes working on tax returns without a disruption” related to inquiries about the Paycheck Protection Program (PPP) loans, he said.
Joe B. Kristan of Eide Bailly LLP also said this year is comparable to nothing he’s experienced in 35 years as a tax professional.
The IRS has released a steady stream of deadline extensions — which now apply almost across the board — over the past few weeks, and many clients seem to be taking the new July 15 due date to heart, practitioners say.
The flow of information needed to file clients’ tax returns has largely dried up, so that process has ground to a halt, Kristan said. Instead, many clients are clamoring for assistance with PPP loans.
“We’re all becoming loan advisers. It’s strange,” Kristan said.
Dan Laughlin of FGMK LLC said the first half of this year’s filing season went “pretty much as well as we could have hoped.” His firm anticipated wrestling with some difficult questions in the second half — “1040 season” — related to section 199A and carryovers and excess business interest expense, “but of course, what we’ve experienced was a completely different type of tax season,” he said.
Laughlin said that for the last two to three weeks, his days have been consumed with getting a handle on the phase 2 and phase 3 bills that worked their way through Congress. Now, 90 percent of his time is spent trying to explain the PPP loans and other new programs enacted by Congress to clients, leading him to pause most return filing activity, he said.
Laughlin said he and his colleagues are still addressing tax questions over issues like the employee retention credit and the employment tax deferral program, among other things. They’re also still working on tax returns, but triaging them to pick out the ones it makes the most sense to process now, such as those eligible for refunds that will provide the client with cash. But for most clients, they’re holding off on filing returns as they await more guidance to see what avenues of relief open up. For example, Laughlin noted that in Rev. Proc. 2020-23, 2020-18 IRB 1, issued April 8, the IRS is allowing Bipartisan Budget Act partnerships to file amended returns for 2018 and 2019.
“It’s for that reason we’re saying, listen, if you have not filed yet, and there’s no clear receipt of a refund — meaning there’s no advantage of pushing forward without additional guidance — let's hit pause so we do what’s best,” Laughlin said.
Busy, Busy, Busy
Some practitioners said the challenges posed by this filing season surpass that of the past two years, which involved adjusting to the post-Tax Cuts and Jobs Act environment.
When the TCJA was enacted in late December 2017, that “made for some unpleasant holidays,” according to Laughlin, but at least they still had a few months to adjust to and comprehend the new tax law. With the CARES Act, there’s “so much beyond tax, and it requires so much interpretation and time, that there’s nothing I can compare it to,” he said.
Bill Marx of Grant Thornton LLP likewise said the current filing season is busier than the post-TCJA tax seasons. The number of hours for his firm’s tax team are “very much up” this year over the previous year.
Marx said that before the CARES Act was enacted, many of his clients listed liquidity and cash flow as their top concerns, which led to a scramble of tax planning to try to find opportunities, including exploring accounting method changes and looking into tax credits and incentives or sales and use tax deferrals.
“Then, at the end of the month, the CARES Act hit. It was tax reform déjà vu all over again,” Marx said, noting that the new law has both retroactive and prospective tax changes that need to be modeled out for clients.
While some practitioners were finding that tax deadline extensions offer extra breathing room, that hasn’t necessarily been the case at Grant Thornton, Marx said. Normally his team would be filing extensions for its midsize and large business clients right now, and then working on the returns during the summer and filing them in the fall. But to reap the benefit of the CARES Act’s tax relief provisions, like the net operating loss carrybacks or more expansive interest expense limitation, businesses must file a tax return or file amended returns.
“Many clients are asking us to get their returns done as soon as possible,” pushing target filing dates into early summer, Marx said.
Not all tax accountants are being put through the wringer right now. Some are finding themselves without much to do.
“Normally this week I’d be going crazy,” Harlan Levinson, a solo practitioner in Beverly Hills, California, told Tax Notes. “Now, I’m getting one return out a day at best.”
Levinson, whose client base is made up mostly of upper-middle-income individuals and small business or self-employed owners, said many of those who expected refunds filed in February, so they’re set. Other clients, who typically prefer to wait until the April 15 deadline, seem to be taking the new July 15 deadline to heart. “I really haven’t heard from a lot of people,” he said.
In terms of a busy season, July could be the new April, with a slow gap in between, according to Levinson. “I wish I could leave my house because it'd be a great time to take a vacation,” he said.
Larry Pon of San Francisco-based Pon & Associates said he still has a stack of tax returns to work on, but that what the next few months hold remains to be seen.
“This is uncharted territory,” Pon said. “I could have a bunch of people pop out of the woodwork in July.”
Because many parts of the IRS have shut down, practitioners can’t call for assistance or fax documents, and documents being sent by mail are going into a “black hole,” Pon said. The IRS has also suspended collections until July 15, which gives taxpayers and tax professionals a little breathing room, but “in a way, it's like, ‘Great, uh, I have nowhere to go,’” he said.
Pon said his office staff ordinarily would take time off in the second half of April, and spend the summer months getting caught up on work and going to conferences for continuing education, but virtually all tax and accounting conferences have been canceled or shifted online.
“I guess I can do a staycation in my backyard, but I live in the Bay Area in California, where my backyard is the size of a postage stamp,” Pon said.
More to Come?
For a filing season already marked by massive disruption, more change could be on the way.
Lawmakers are debating what to do for the next phase of coronavirus-related relief, and the IRS and Treasury have been issuing an endless stream of guidance to implement new relief programs.
Laughlin said he hopes policymakers will allow time for the phase 3 relief package to settle in before rushing into the next phase of legislation that could cause headaches for taxpayers and tax practitioners in the future.
Kristan was similarly unenthusiastic about the prospect of more rapid disruption. “Exciting is one way to put it — I suppose it’s always exciting when you see a car heading toward you on the sidewalk,” he said.
Follow Jonathan Curry (@jtcurry005) on Twitter for real-time updates.