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Interview: The Taxman Cometh... Home?

Posted on Apr. 27, 2020

E. Martin Davidoff, the head of tax controversy at Prager Metis, discusses how the IRS and tax practitioners are handling tax changes and working from home as a result of the coronavirus pandemic with Tax Notes senior reporter Paul Jones.

The interview has been edited for length and clarity.

Paul Jones: Hi Marty. How are you doing?

E. Martin Davidoff: I'm doing great today, Paul.

Paul Jones: Excellent. Let's jump right into it. Obviously, the coronavirus pandemic has affected every level of our society, and the tax world is no exception. What are some of the ways that the lockdowns, the filing extensions, and other changes have affected your work at your office, both in terms of the number of clients that you're dealing with and the types of work that you're doing? What changes are you making to your operations in light of the pandemic?

E. Martin Davidoff: We're a controversy department within Prager Metis, so in terms of the IRS work that we do, it's like somebody turned off the spigot. We saw this with Hurricane Sandy in 2012. The notices stop, so the people stop coming into the office. It's not quite as bad as we thought.

Through our reputation, we're still getting a lot of people. But the work has slowed, so we're trying to catch up on projects. The staff is under a little bit less pressure because nothing is due until July 15 with the IRS, so we're cleaning up our backlog. 

Most of the revenue officers and appeals officers are still working cases, so we can have conversations with them. The work is there in spite of the fact that the number of notices going out are far fewer and the spigot has been closed partially down.

Paul Jones: One thing that occurs to me is that if there is a slowdown now, you could have an increase in demand later on, given that the deadline's been moved back. Are you anticipating a rush in the near future?

E. Martin Davidoff: We're anticipating a rush from the third quarter, July to September, and I think it's going to ramp up to a crescendo. I think people, once they get out, they'll start to attend to their stuff in September once some of the IRS notices start getting out. That may not be a hard and fast timeline.

I still think there's a lot unknown about COVID-19 and our reactions to it, and I think it may linger into the fourth quarter. But I think September, at least, is going to be a very busy month. When the IRS wakes up and starts sending out notice of intent to levy and lien notices, we're going to get a lot of business.  

Paul Jones: I want to talk a little bit about the IRS. Obviously, it focuses to a great extent on collections, and it's had to change its collections activities in light of the pandemic. Can you talk a bit about how it has changed its collection actions, and how that has affected you and your work?

E. Martin Davidoff: The first thing is the commissioner of the Internal Revenue Service is what I call one of us. He was a practitioner until he became commissioner. He started the People First Initiative, where he basically said, 'Listen, we're going to extend deadlines. We're going to do the right thing.' That came pretty early toward the end of March, even before Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

There's a whole bunch of things that are happening. They've deferred installment agreement payments. If you're in an installment agreement, you can stop paying through July 15. If you're in a direct debit installment agreement, you have to contact your bank.There's no levies, no garnishments, no seizures, and no lien filers.

It's a good time for us to advise non-filers because they may be able to get in with a slightly more lenient IRS. We're still able to get into agreements with revenue officers.

I think we're going to have an opportunity even after July 15 to get some deferrals. I think we'll have a kinder and gentler IRS  even after July 15  than before the COVID-19 pandemic started.

Paul Jones: Other aspects of the IRS's operations have been changed, including audits. How is that affecting things? Is there a similar sort of impact with respect to those changes?

E. Martin Davidoff: There are no new audits coming aboard. They're not being started, but the revenue agents are working at home and we're working cooperatively to finish audits. We're working with appeals officers.

I want to circle back to the some of the collections issues I was talking about. The passport revocations were a big deal. People were paying money when they had a certification of the Secretary of State that their passports were going to be revoked. That's not happening anymore. 

They're not sending any new cases to private debt collection agencies. Those calls are going to stop for taxpayers. They are establishing new installment agreements where they can agree with the taxpayer, and they are still placing clients into currently non-collectible. But these are just revenue officers out in the field because there's nobody to answer the 800 phone numbers.  

Interestingly, the statue of limitations can't get extended by the IRS unilaterally. As they face statue of limitations, they might get aggressive in some serious, more egregious cases. 

Paul Jones:  One thing that occurs to me is that a lot of people who would normally be physically present at IRS offices are not. Does that affect your ability to get information or to work with these people in any way? To have them not be at their traditional place of work where maybe they have access to certain resources that they won't if they're telecommuting?

E. Martin Davidoff: I was talking to a revenue officer earlier this week. She said that once a week she's allowed to go into the office for two hours when nobody else is in there for her to use any of the technology or get any files that she needs to get. She has to make an appointment the week before. 

Most people are paperless. We're able to deal with most of the revenue officers, appeals officers, and revenue agents, which are people outside the 800 numbers. They are talking and their workload is down because they're not getting assigned new cases. 

Basically, they're like us  —concerned about their lives and situations, and they're being careful and they're working at home. It's going to be tough for us to get some stuff. We can't even get a power of attorney into the central authorization facility because they've closed down the fax lines.  

Now, how does that affect us? Well, part of what we do in our CPA firm is tax returns. We usually go online through e-services after we put in our power of attorney to download the account transcripts. There's no way to get the power of attorneys in, so we can't do that.

One of the workarounds we're trying to do is to go to our clients and say, "Can you sign online?" Some can, some can't. If we really had a situation where we had to get a document, we'd probably go to the taxpayer advocate.

We had a case the other day in order for somebody to accelerate their Medicare payments for a physician's office, he needed a letter 147-C that confirms his ID number and the name of his company. We went to a taxpayer advocate who we had the cell phone number for and called him up. Some of the advocates are working at their regular phone numbers which are being forwarded to their cellphones or their homes.  

To some limited extent, we can get things done, but a lot of stuff we can't. But then again, there's no urgency to get them done because the IRS is not threatening to do anything. Usually it's the threat that the IRS is going to levy or seize that drives people to our doors and drives the urgency of us getting stuff done. Right now, nothing is due until July 15.

Paul Jones: The Priority Practitioner Hotline is also closed. Is that affecting your work as well? If so, what steps have you taken to deal with the challenges that that can present?

E. Martin Davidoff: Yes, it certainly is. That's one of the places we would get our account transcripts. We're trying to use online resources as much as possible and other contacts with the IRS, like the IRS taxpayer advocate. We're trying to get information from revenue officers and appeals officers.

I would advise listeners keep an eye on www.irs.gov, particularly the notices and rulings as well as the COVID-19 section on the website. They're coming out almost daily with rulings either on changes in the law that affect taxes, like the net operating losses.

Paul Jones: The IRS is now rolling out economic impact payments. We've seen a lot of coverage recently as people are receiving those. Is that having any effect on your work? Are you seeing people who are looking to maybe catch up on their taxes in order to take advantage of that program?

E. Martin Davidoff: If you are required to file a tax return for 2018 or 2019 and haven't done it, you're not getting an economic impact plan payment until at least you file one of those two returns. We're finding this very interesting on multiple levels.

For example, let's say I have a single individual who made $75,000 in 2018. But in 2019, they made $110,000. They won't qualify for the economic impact payment based upon 2019. We're saying, "Hold off on filing your 2019 return until you get your check, and then we'll file the 2019 return."

In essence, the way the government has worked here in the legislation under code section 6428, they basically said we're going to use the 2019 return unless it's not there. Then we're going to use the 2018.

Then in 2020, when you file your 2020 return, if you can get more money, we'll give you more money. But if you're going to get less, we're not going to take it back. It's basically heads I win, tails you lose from the taxpayer to the government, where the government is basically saying, "That's OK." If you qualified under the 2019 or 2018 tax return, the government's not going to take back that check.  

This is also a good time for non-filers as you suggested. For me, to get them in and say, "Let's have a strategy about dealing with your non-filing. You now hopefully have time to put together your records." There's a lot of clients that say, "Oh, I never have time. I'm so busy." A lot of clients now have that time because they're not so busy. We help them come up with a strategy. 

Paul Jones: It's a good time for people to catch up on things, both in terms of tax practitioners and clients?

E. Martin Davidoff: Absolutely.  

Paul Jones: You had mentioned a lot of guidance is coming out now, including about the CARES Act. What are some of the items that you think are particularly significant that have come out recently, particularly for practitioners, CPAs, and even clients?

E. Martin Davidoff: I think there's some opportunities here for practitioners to get some work done and help their clients. First of all, with the extension of the 2019 filing to July 15, people who didn't file their 2016 returns, who might have refunds, also now have until July 15. People should be aware of that.  

The other thing is section 1031 transactions that might have come to the 180-day deadlines or the 45-day deadlines are all now extended to July 15.  

Furthermore, there are some changes in the law. I'm going to put three together that can generate net operating losses, and you have an opportunity to get a quick refund using forms 1045 or 1139 if you file by July 27. To know that you have to look at new revenue procedures 2020-22, 2020-23, and 2020-24.  

These are looking at the new laws on net operating losses that allow you to carry back five years. It talks about the new qualified improvement property. Let's say you built an Arby's in 2018. You had it depreciate over 39 years. But now, they fixed the qualified improvement property (QIP) technical defect. You now can deduct the entire $3 million possibly. Therefore you might want to amend your 2018 return.  

Maybe your business was subject to 163(j), where you can only deduct 30 percent of your interests because you had revenue over $25 million. Now the IRS is giving you a do-over on that previously irrevocable election.  

There's some really great opportunities here to amend your 2019 and 2020 returns. If you haven't elected out of your centralized audit regime on your 2018 or 2019 returns, you have until September 30 to do that. These are all addressed by three rev procs that are very generous to taxpayers and show the direction the IRS is going to be considerate of taxpayers in these troubling times.

Paul Jones: It seems like even though we're in the midst of a pandemic and facing potentially some economic problems, there are a lot of opportunities that people can take advantage of in the tax world. If you're willing to look at the glass half full.

E. Martin Davidoff: Absolutely. There are many opportunities. A lot of work to go back, look at your clients, and say, "OK, who's going to qualify for these things?" Reach out to clients because the clients aren't going to come to you.

Paul Jones: Excellent. Marty, it's been a real pleasure speaking with you.

E. Martin Davidoff: Well, thanks so much, Paul. I really appreciate being invited onto your program and participating with you today.

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