Two years of extraordinary stress and change have transformed many small and midsize tax practices in ways it might not be possible, or desirable, to reverse in time for the 2022 filing season.
An online practice management tool propelled Donald A. Nelson’s tax practice “about five years into the future” and persuaded him to launch his own software.
Employees at David Miles’s 2020 Tax Resolution Inc. were surprised how successfully they transitioned to remote work, though Miles added, “It also reaffirmed for us how important that office experience is.”
National Association of Enrolled Agents President David Tolleth said he hasn’t told his mid-Atlantic clients yet, but he plans to switch to an almost virtual service environment because “between Zoom and . . . DocuSign, it’s working pretty well to work virtually.”
The period between the October 15 filing season deadline extension and the January start of filing season is traditionally occupied with IRS operational and software system readiness tests. Tax professionals told Tax Notes that in addition to catching up on tax policy and administration changes, they are preoccupied with their firms’ technological and interpersonal practices under the shadow of the persistent COVID-19 pandemic.
The pandemic’s “tentacles are alive and well,” said Scott Cheslowitz, partner at Rothenberg & Peters PLLC. He said that a dithering Congress and a financially hobbled IRS preoccupy tax professionals wrestling with late tax law and administrative changes that must be incorporated into return preparation software. During the pandemic, “you’re even more aware that things aren’t tested the way they were,” and worry whether you’ll be able to get help from the IRS, he said. “That’s going to roll down the hill to us.”
Service Slide
IRS service and clarity on agency enforcement priorities are major concerns of small and midsize tax practices.
“Predictability came to be something . . . we could offer to our clients,” Miles said. “That’s gone.” The IRS’s recent habit of issuing notices on payments it hasn’t yet processed makes it difficult to give taxpayers resolution advice, he said.
“I used to worry about getting someone [in IRS customer service] who was knowledgeable about some nuanced procedure,” Miles said. “Now I’m worried about getting someone who will hang up on me.”
IRS mail and processing times used to have reliable deadlines, Tolleth said. “Now they don’t,” he said, in part because of pandemic-related backlogs and phone assisters’ diversions to the Federal Emergency Management Agency.
“Congress isn’t helping at all, with the lack of funding,” Tolleth said. While the Biden administration has proposed $13.2 billion for fiscal 2022 IRS funding, plans to rebuild the agency with $80 billion over 10 years appear to be stalled.
Miles said his company, which helps taxpayers resolve disputes with the IRS, never used to pay much attention to tax return operations.
“We are now more interested in how payments are made, with mail being a bottomless pit,” Miles said. “There’s more emphasis now on getting the tax return right the first time.”
Tax professionals also worry about late congressional tax changes. “I watch [Congress] every year because it seems that every year there are last-minute things that change,” said CPA Neil H. Fishman of Fishman Associates CPAs.
“I’ll be wondering what [the IRS has] done to get back to their central mission to help taxpayers understand and meet their responsibilities,” Miles said. “They’re not meeting their central mission right now.”
Ch-Ch-Changes
Angela Radic of Artemis Tax Service said, “My biggest hurdle to implementing technology in the past was resistance from coworkers who felt overwhelmed at the prospect of learning and implementing new tools.”
The COVID-19 pandemic forced Artemis, like many other small and midsize tax businesses, to reconsider practices and technologies they previously resisted.
Radic said her practice had resisted using voice over internet protocol technology because of concerns about what a power outage would do to its telecommunications capability. But a VoIP system allowed Artemis to receive phone calls at the office and reroute them to the company’s appropriate work-from-home employees, she said.
“More than once during a videoconference, I had a client tell me that they had learned to use videoconferencing in order to keep in touch with family during quarantine, and now they enjoyed the fact that they could meet with me from the comfort of their own home,” Radic said.
Miles said his practice had most of the technological pieces in place, such as videoconferencing, but “I’ve been surprised by the lack of embracing by the consumer of that technology.”
Tolleth said young people are more likely to embrace remote, technological solutions to tax administration. “I think it’s a trend for people to want to spend less time gathering docs in paper,” he said.
Nelson said he launched the Pacesetter Tax app during the pandemic in hopes of relieving some of the burden of tax practice administration after he failed to find comprehensive software solutions.
The Pacesetter app can replace three to five support employees at a midsize tax firm, Nelson claimed. “People who don’t adopt some form of this [practice management] will fail,” he added.
The New Normal
The COVID-19 pandemic accelerated already existing forces of change in tax practice, practitioners told Tax Notes.
The average age of an NAEA member is 61, Tolleth noted. Twenty-three percent of the association’s membership is over 70 years old, he said.
“Our average member is not strong on technology, unless they have a bigger practice,” Tolleth said. Half of NAEA members are solo practitioners, while half tend to have several employees or are members of bigger firms, he said.
The enrolled agents association’s concern now is “people giving up and leaving the profession,” Tolleth said.
However, Fishman said he hasn’t heard of any tax businesses giving up. Those that relied exclusively or primarily on business clients may have suffered during the pandemic-induced economic downturn, but practices with a mix of individual and business clients fared better, he said.
“The tax profession, we are always going to be needed,” Fishman said.
Miles said that clients who adopt new tax technology tend to be “in trades that have been more embracing of the technology that helps them do their own jobs, as well.”
An apparent labor shortage in tax accounting and related professions may exacerbate the practitioners’ difficulties.
Nelson said Pacesetter executives recently met with members of a Utah university masters of taxation program who explained that students are being recruited before they get a degree.
Big accounting firms will interview 20 students at a time over pizza, Nelson said. Some firms offer to hire students and pay for their schooling, and even offer financing for a master’s degree, in exchange for an early commitment, he said.
If there is a “new normal” in tax practice, Tolleth said, “I think it may be more virtual, and more chaos in legislation.”