Tax professionals closing one of the strangest filing seasons in memory now have to contemplate whether and how the coronavirus crisis will change the tax system and their businesses in the future.
“CPAs breathed a sigh of relief” after the IRS sent out repeated notices in late June indicating that the extended July 15 deadline would stand, according to Chris Hesse, chair of the American Institute of CPAs’ Tax Executive Committee .
Hesse told Tax Notes that those notices reinforced for clients the imminence of the payment deadline, and it allowed the 6,500 staff at his firm, Clifton Larson Allen LLP, to finish calculating data for October 15 extension requests. “Without July 15 [as the deadline], we wouldn’t have been able to do the extensions,” he said.
“To say that this has been the longest and most challenging tax season is most definitely an understatement,” remarked enrolled agent Twila Denton Midwood of Advanced Tax Centre Inc. “Changes were happening on a weekly basis. Virtual and contactless environments just compounded the stress.”
The IRS is still catching up with where it was last year at this time on receiving and processing returns — down 4.4 percent on receiving as of June 19 compared with the same week in 2019, and off 11.4 percent on processing over the same period. But it’s a big improvement from the start of the coronavirus crisis. For the week ending April 10, IRS had received 12.9 percent fewer returns, and processed 15.5 percent fewer, compared with the same week in 2019.
The IRS continues to reopen, prioritizing customer service and refund issuance, according to Commissioner Charles Rettig’s testimony to the Senate Finance Committee June 30. But practitioners said there’s been plenty to complain about — from mysterious refund holds to lengthy delays for anything filed on paper, from unanticipated workloads from clients struggling to qualify for the Paycheck Protection Program (PPP) to a frustrating lack of information from the IRS.
And that’s before contemplating the growing influence of COVID-19 on the tax system and tax practice.
(Not) Working With IRS
Some practitioners reported that the July 15 deadline worked out for the better for their businesses.
“The extended filing season has evened out our work flow, and we have not had to deal with the 20-hour workdays the two to three weeks prior to April 15,” said enrolled agent James R. Adelman of Tax & Financial Services LLP. Hesse noted that with Clifton Larson’s conversion to electronic documents, “we don’t have piles of paper lying around.”
Brian L. Thompson, a CPA at Bailey & Thompson Tax & Accounting PA, said the biggest problem he encountered involved the IRS’s fax-based centralized authorization file system for granting powers of attorney and representation to tax professionals. “I understand it usually takes three to five days to process” powers of attorney, he said. “When [the IRS has] been shut down for months, I can’t imagine the backlog.”
“Where I’m still against a wall is when I encounter anything to be mailed to the IRS,” said enrolled agent Phyllis Jo Kubey. It’s not just tax returns that get caught up in a mail pile estimated to be 11 million pieces high, she noted.
A lot of nonresident foreign workers’ Forms 1042-S, which Kubey called “a W-2 on steroids,” must be filed by March 15, which happened to be right at the start of the emergency. “This year I suspect a lot of 1042s are just sitting around,” she said, and the workers who need them will have to wait, while the IRS will have to pay interest on the tardy refunds.
Even refunds for paper returns filed before the COVID-19 crisis have been delayed, said enrolled agent Sean Monohan of Chartered Financial Services LLC. But Kubey and others noted that e-filed returns are also seeing refund delays. Thompson said the IRS’s usual estimate of 21 days for payment has stretched to six to eight weeks for some of his clients.
There’s been added practitioner work from new federal relief programs, such as the PPP. “The PPP loan forgiveness plan is constantly changing and, as a result, there is additional time spent in assisting clients in that arena,” Midwood said. “Consultation fees are definitely up due to assistance with PPP loans.”
And while some practitioners report satisfactory results from some reopened IRS services, Adelman said that being unable to communicate by secure email with revenue agents or revenue officers to keep things like installment agreements and offers in compromise going has hamstrung some clients’ and practitioners’ filing plans. “We respond to [IRS] computer-generated letters, but our responses are not being dealt with,” he added.
Preparers or Counselors?
Tax professionals said they spent a lot of time this filing season dispelling client confusion and explaining things.
“I do have a sense from my clients that they have been struggling,” Thompson said. PPP loans are running out, as are funds from economic injury disaster loans and other relief, he noted. Many preparers “didn’t know early on that Congress would ask us to help our clients qualify for PPP loans,” Hesse added.
While practitioners are relieved that the July 15 return filing and payment deadline has been finalized, Monohan said, “Many clients are still confused as to what was extended — state or federal — and which types of returns.”
And despite having an additional three months to prepare, some clients are simply procrastinators. “Anecdotally, I’d say yes,” the wealthy are more likely to procrastinate, Hesse said. But wealthy and high-income taxpayers also have more complex returns, and a single overdue Schedule K-1 can delay filing of a return, he said.
Together, those circumstances “put tax professionals at times in the role of counselor, when we are not trained for that,” Monohan said. As taxpayers tried to juggle their filing obligations, the concurrent COVID-19 crisis, and the IRS shutdown, Thompson said, “we became the Internal Revenue Service’s customer service line.”
New Normal
Most clients have adjusted well to the new normal of offices with 6-foot social distancing and contactless service, tax professionals told Tax Notes.
Workforce precautions vary by location. Thompson said his employees in Arkansas wear masks when running errands outdoors but may remove them at his two offices. Hesse said his firm left it to employees to decide whether they wanted to come back to their offices even after government restrictions had been lifted.
“This has been an experiment in, can people work in this different environment?” Hesse said. “Can we as employers say to our employees, ‘Yes, it’s fine if you don’t want to come in today” because tools such as the videoconference app Zoom, and secure email, make it possible. “I think we are learning that is entirely possible in the professional environment in which we work,” he said.
Thompson said the jury’s still out on how much the coronavirus pandemic might change his practice. He said he’ll probably keep the 7-foot glass partition at the reception desk. But he looks forward to accepting walk-in clients again and reading facial expressions and body language in face-to-face meetings, rather than trying to guess them over a monitor.
Hesse said, “If [the pandemic] had happened 20 years ago, we’d have been in a much worse situation,” without broadband internet, secure communications, and audio-video applications. “I think this accelerated what might have been going on anyway” as the tax system finalizes its shift from a paper-based to electronic communications, he said.
“Maybe we don’t ever go back to the way things were, because we found that when we had to make a change, it made some things better,” Hesse said.