Tax Notes logo

Preparers Scramble in Pandemic Adapt-to-Survive Moment

Posted on May 4, 2020

Tax return preparation businesses are experiencing an adapt-or-die moment in the coronavirus pandemic, but the survivors are likely to prosper, industry representatives say.

“Tax professionals who want to remain in this business will learn to adapt and learn to use all the tools that are available to work virtually and remotely,” said Cindy Hockenberry of the National Association of Tax Professionals. “Who survives and who does not is largely a matter of who adapts to the changing environment.”

Real U.S. GDP fell 4.8 percent in the first quarter of 2020, led in part by decreased demand for services as the pandemic prompted widespread stay-at-home orders, according to the Bureau of Economic Analysis. While there is no government data showing the impact of the emergency on tax practices, trade groups and retail preparation firms described a harried, overburdened, but determined and innovative community of tax business owners.

Eric Toder, co-director of the Urban-Brookings Tax Policy Center, said the pandemic tumult has made his job of analyzing tax policy difficult because "all our models are based on assuming the future will be like the past. And it will not be.”

Hockenberry said practitioners were still absorbing changes wrought by the Tax Cuts and Jobs Act and the Taxpayer First Act (P.L. 116-25) when the blast of emergency legislation hit, including the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136), enacted over the past two months.

“All the questions swirling around the stimulus payments, [Paycheck Protection Program] loans, and [Small Business Administration] loans have all of us scrambling,” Hockenberry said.

Robert Kerr of the National Association of Enrolled Agents noted that changing the income tax return filing deadline to July 15 means “the 91-day extension more than doubles the length of the filing season.” That can mean added business opportunities, he said. Unfortunately, it also extends the time procrastinators can delay filing their returns, he added.

Fear Is a Contagion

Tax business models are being stressed by the coronavirus pandemic and the resulting economic contraction.

“The nature of work might change a lot” in response to the ongoing emergency, Toder said. “We’re certainly learning new ways to do things.”

Retail return preparation companies H&R Block and Jackson Hewitt Tax Service both said they are expanding low- and no-contact services, such as document drop-offs at local offices, and observing community rules on social distancing and disinfecting facilities.

Both companies offer virtual tax return preparation guided via chat, screen sharing, or phone calls. “Everyone still needs to file a tax return,” said H&R Block spokesperson Susan Waldron.

But whether a people-intensive business such as return preparation qualifies as an essential service differs by state and sometimes by county or city, Hockenberry noted. Many of her 23,000 member-practitioners are working reduced hours, ending personal interactions, and accepting document drop-offs. Some preparers can only operate remotely, she added.

Stephen Mankowski of the National Conference of CPA Practitioners said the loss of face-to-face meetings has hurt his practice, which relies on a personal touch more than big accounting firms do. He said he increasingly uses online portals that allow practitioners to securely exchange messages and documents with clients.

The coronavirus isn’t the only contagion, Mankowski noted. He recalled one member who told him her office staff had become fearful about interacting with and accepting documents from clients. “The staff person is going to be slower to recover [psychologically] than the client” because of the worker’s repeated exposures, he said.

“If customers see the staff become fearful, they will become fearful,” Mankowski added.


Kerr said tax “practitioners should have plenty of opportunity, once [the] IRS reopens for business.”

“The nonfiler issues alone should . . . cause CP2000s to rain from the sky,” Kerr said, referring to the IRS’s proposal notice to adjust a taxpayer’s income, payments, credits, or deductions. “We should see business from amended or superseded returns, from [net operating loss] carrybacks, and in response to other actions Congress and local leaders have not yet taken,” he said.

The IRS took its first tentative steps toward reopening April 27, after it called for thousands of employees to volunteer to resume what the agency described as critical functions. Tax professionals complained that practitioner services haven’t been restarted.

Mankowski noted that some IRS automated systems have been pumping out notices that require taxpayer responses on deadline — while most of the agency’s taxpayer and practitioner service lines are closed. Even with the recent IRS reopenings, “it’s going to be months for them to get caught up” on processing the responses, he said.

Mark Steber of Jackson Hewitt sounded a positive note. “With so many people receiving unemployment or picking up side-gig jobs for extra income, next tax season will be more complicated for most, and we expect that taxpayers will rely on tax professionals more than ever,” he said.

Yet Hockenberry predicted that smaller tax businesses won’t make it through the coronavirus emergency and the economic downturn.

“The longer this goes on . . . the more difficult it will be to bounce back for many small businesses, not just tax preparers,” Hockenberry said.

Kerr also said he expects a longer recovery. “It is said the markets fall like an elevator and recover like an escalator. This season was our elevator; the modification of our businesses will be like an escalator.”

Taxpayers bewildered by this year’s changes will want a tax professional to sort them out next year, Kerr and others predicted.

Tax professionals “thrive on change,” Toder said. “Something’s different, somebody’s got to figure out.” The coronavirus pandemic “is bad for the business in the short run, and it’s good for the business in the medium and the long term,” he said.

Copy RID