Tax professionals say the IRS and Treasury have a long way to go in advising them about and implementing a 90-day tax payment deferral plan to lessen the financial impact of the coronavirus pandemic.
Treasury Secretary Steven Mnuchin announced the initiative to defer up to $1 million in individual tax payments (and up to $10 million for corporations) without penalties or interest during a White House press briefing March 17.
Tax practitioners told Tax Notes that while they appreciate the tax payment relief for individuals and businesses in sudden financial distress from the pandemic’s fallout, there are too many unanswered questions about how the IRS will deal with taxpayers already on payment plans or without access to the internet or in-person tax help, and how state tax authorities will mesh — or not — with the new tax season regime.
“There’s a large gap between the guidance tax professionals would like to see and what we’re seeing,” said Robert Kerr, executive vice president of the National Association of Enrolled Agents. “We don’t need all the guidance at once,” he added. In the short term, the IRS should advise on existing payment plans, including offers in compromise and installment agreements, to set an extended date so they won’t default, Kerr said.
Enrolled agent Kathy Hettick said she is “super frustrated we are not getting any messaging from the IRS. Even if they don’t know anything, just some kind of ‘it’ll be OK’ messaging. . . . ‘Just file your taxes’ [as Mnuchin advised at the press briefing] puts so much pressure on taxpayers who need assistance and are not electronically savvy to work with their tax pro or computer.”
Pressure on the IRS
Mnuchin did not announce a delay to the April 15 tax return filing deadline. “We encourage those Americans who can file their taxes to continue to file their taxes [by] April 15,” he said, adding, “Just file your taxes, [and] you will automatically not get charged interest and penalties.”
Tax practitioners agreed that Mnuchin’s announcement is likely to increase the load on an IRS workforce already stressed by the coronavirus pandemic.
The IRS and Treasury didn’t respond to requests for comment.
The $1 million limit for individuals was established to cover small businesses and passthrough entities, Mnuchin said at the briefing. He said the plan will defer as much as $300 billion in IRS payments. “That’s an enormous amount of liquidity in the system,” he said.
Mnuchin said refund issuance will not be interrupted for taxpayers who file.
However, enrolled agent Phyllis Jo Kubey said, “The IRS will be getting calls and questions from taxpayers . . . which will strain [the agency’s] resources.” Taxpayers who use volunteer income tax assistance and tax counseling for the elderly preparation services are still without those resources, since most shut down because of social distancing guidance, she noted.
Hettick wondered how Mnuchin’s announcement will change taxpayer filing behavior, which could affect the IRS work stream. “Can you imagine the IRS trying to process all those letters for taxes due between April 15 and July 15?” she said.
Still at Risk
Extending the IRS tax payment deadline may not help vulnerable taxpayers or those who’ve already reached some kind of agreement with the agency, tax pros said.
Stephen Mankowski, the immediate past president of the National Conference of CPA Practitioners, noted that while most tax professionals have secure portals and other technology to work virtually with a client, “If taxpayers are requested — and in many cases required — to stay in their homes, there is no way for them to get their information to tax preparers.”
Treasury also hasn’t advised about direct debit payments for taxpayers who have already filed their returns, Mankowski noted. Right now, those payments are scheduled to be debited on April 15, not July 15, he said. “If those payments don’t get extended, what’s the likelihood of any of [those taxpayers] using the direct debit option in the subsequent years?” he asked.
David Werlich of Ryan & Werlich wondered how the IRS will handle first- and second-quarter estimated tax payments due on June 15. “Safe harbor payment rules require the calculation of the 2019 tax,” he noted.
“We need an auto extension of time to file,” Hettick said. “Why not just extend the [tax return] due date? For me, in [coronavirus-stricken] King County, Washington state, this is causing added stress to taxpayers, particularly small businesses, who don’t have the time or energy to worry about getting tax information together and then deliver it to me.”
Software Updates, Etc.
The tax payment deferral announcement has implications beyond just the IRS and the tax professional community, practitioners said.
“Extending the [filing] deadline also extends the need to keep seasonal employees for up to an additional quarter,” said enrolled agent Cynthia Leachmoore of Soquel Tax Service.
Taxpayers will also need to pay special attention to their state tax return filing deadlines, which may (at least for now) be in conflict with any federal extension that is granted, Leachmoore said.
“The tax software vendors are a big piece of the puzzle, too, and they may also operate under handicaps with workforces affected by the pandemic,” Kubey observed. “We will need software fixes to set up payment dates beyond April 15, 2020, for 2019 balance-due payments and 2020 first-quarter estimated tax payments.”
Mankowski wondered whether Mnuchin’s relief isn’t too little, too late. The federal government estimated that nonessential businesses will be closed or operating on a limited basis for eight to 12 weeks, he said. “The extension of time to pay really isn’t a boost to the taxpayers in this time of crisis,” he said.
Some tax professionals said they’re operating under difficult quarantine conditions. “Stimulus is one thing,” Werlich said. “I don’t opine on that stuff, but getting the work done well for our clients, I really care about that, along with my employees and the greater public health.”
Hettick exhorted tax practitioners to support the relief that the new policy will bring. “Let’s not be selfish, tax pros,” she said. “We all like the efficiency of tax season and the April 15 due date. But our clients and taxpayers at large need the pressure of tax filing off, and more time to file.”