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State Responses to Pandemic Include New Tax Settlement Authority

Posted on Apr. 6, 2020

New tax settlement authority is already in play in at least one state, and additional responses to the pandemic could include retroactive statutory authorization for revenue departments to suspend some tax deadlines or waive interest.

Shirley Sicilian of KPMG LLP said the immediate focus of most state revenue departments has been on conformity with or departure from new federal filing and payment deadlines, but noted that nearly half of the states have now started issuing guidance on compliance issues ranging from audit and refund processing to protest and settlement. 

“The reality is, there may continue to be gaps in state guidance,” Sicilian said during an April 1 webcast hosted by the firm. Some state tax administrative issues may not be ironed out until the pandemic is under control, she said. “Even where we do have guidance today, the situation is fluid, and we might expect to see some of it change,” she added.

“It’s even technically possible that some of this may change retroactively where, for example, a state tax agency representative or the governor didn’t have authority to suspend certain deadlines or waive interest,” Sicilian said.

Watch for new settlement authority in future rounds of state tax responses to the COVID-19 pandemic, Sicilian said, citing a release by the Mississippi Department of Revenue addressing this topic. In it, the DOR said its audit staff is continuing to work on open audits, but that it wants to resolve issues to minimize audit controversies. “We will agree to abate penalty and interest on any audits closed during this period of national emergency and where the taxpayer agrees to settle the audit without appeal and pay the tax due,” the posting said.

Sicilian also said there could be opportunities for taxpayer clients who are far enough along in the audit process. “Especially if you can be creative with payments and which fiscal year it falls in, depending on whether it’s an assessment or a refund, the states may be looking to potentially wrap up some of these issues,” she said. 

Sicilian also pointed out exceptions and other nuances to guidance already issued by states that practitioners should closely examine. For example, she said that even within guidance easing up on handwritten signature requirements, there could be a statement by the revenue department noting that it still requires a handwritten signature on a power of attorney, as in Nebraska. 

Also, some state tax filing or payment extensions are automatic but must be requested in other states, Sicilian said. The same is true for waivers of statutes of limitations and for deadlines for information document requests, she added. 

The scope of a state’s guidance is also important, because if a DOR has issued blanket guidance, then an extension or suspension of the statute of limitations might apply not only to refunds, but also to assessments, Sicilian said. Similarly, broad guidance on the suspension of interest might apply not only to interest on assessments or under audit, but also to refund requests, she said. 

The scope of the guidance can be specific to a type of tax. “And keep in mind that it might not apply for local jurisdictions,” Sicilian advised. Also, some pandemic-related state tax guidance is date-based or event-based, and some of it is just labeled temporary, she said.

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