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Simply Tax Season

David Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: 2020 filing season. This is the second tax filing season since the Tax Cuts and Jobs Act was enacted. Here to talk to us about it is Damien Martin. He's a director at BKD, LLP and hosts the Simply Tax podcast. Damien, welcome to the podcast.

Damien Martin: Thanks for having me. It's good to be here.

David Stewart: Well, why don't you tell our listeners a little about yourself?

Damien Martin: Well, as you mentioned, I am a director at BKD. I'm an advisor primarily to family-owned and closely held businesses. So that's kind of my background, which we can kind of layer in here on how it was to apply these new provisions of the Tax Cuts and Jobs Act (TCJA) to that group. I also have played an integral part in our response and helping the firm really digest the provisions - whether that be templates or education. That's both inside our firm as well as outside. So, kind of a number of tax hats that I wear in the firm but that's kind of the lens that I look at things from.

David Stewart: So, as I mentioned, this is the second filing season under the TCJA. How did the first one go?

Damien Martin: Well, I'd say it was definitely challenging is the word, I think, that I overwhelmingly hear. I do talk to a lot of other practitioners as I go around speaking or as part of working with the podcast. Keeping up with all the change, understanding it and digesting it, and then really managing the areas of uncertainty was particularly the challenge that we had last year.

David Stewart: So what lessons do you think you can draw on from last year to use in this season?

Damien Martin: The biggest one that I generally repeat is that you can't just rely on the software. You know, that's really not a knock on the software companies at all. I mean, they actually I think did a great job of responding to and integrating and changing. For example, section 199A. We got the final guidance there in January last year, right as you were going into the filing season. There were a lot of changes like that that needed to be made to the software along the way.

So when I say "don't just trust the software," it is [because] it only knows what you tell it. So you can't take things at face value, you've really got to make sure you understand it. I think in particular this year, going into the second filing season, is watching the carryovers. Softwares, a lot of times, will bring things over. Again, you look at section 199A, right? We do have negative QBI carryforwards. And I'll say just a combination of either, maybe your thinking has evolved around it or maybe perhaps it didn't matter in the first year, but it does in the second year. So things like that are going to be very important to watch for as we're in this now second year with the Tax Cuts and Jobs Act provisions.

David Stewart: Are there other specific challenges that you're currently facing or that you anticipate facing this year?

Damien Martin: Absolutely. In the area of schedule K-1. So when you're looking at passthrough entities, there's a number of the provisions, section 163(j) in particular, that you saw a lot of variation in the way that people reported it. A lot of conversations with a lot of practitioners at a lot of different firms. And what I'll say is generally there was a lot of differences in sometimes how you would see that information reported on K-1s. Same thing with the qualified business income deduction, and a few other areas as well. So whether you're issuing the K-1 or you're receiving the K-1, again kind of like the software coming in, you got to go beyond the surface level and really understand what's in there, how it's been reported. And there were a number of things that changed this year from last year.

Going back to qualified business income deduction, there's now a new form that's reporting it. The codes have changed, so keeping up with that and understanding that is going to be really the challenge. You have to kind of really go beyond, just the numbers on the page will go away. I think we're going to still have to deal with that. Even in the second year of dealing with these changes.

David Stewart: Now, there's still guidance constantly coming out. Are you finding that clients are still confused?

Damien Martin: Definitely. I think clients are. I think, honestly, practitioners are. I was doing two presentations last week. One with a group of CFOs, and so I'll share some of those and their questions, but then one was with a group of practitioners. I would say that there's still challenges and confusion in a lot of areas there as well. It really would vary depending on how much you had to deal with a different situation. I think the areas of confusion that practitioners still wrestle with are some of the areas where it's a little less cut and dry. Areas like the definition of a trader business.

We all know, and I know that you've had guests on the podcasts who've talked about the fact that obviously there isn't one that's a clear definition. It really depends on the facts and circumstances. That has been a frustration, but also an area of confusion for people in terms of understanding that. In the real estate area, in particular, when it comes to the trader business definition, you're looking at a hundred years of case law. As a result of that I think there is just some maybe misunderstandings that kind of continue on. So being careful and aware of that really becomes important.

On the taxpayer side, again talking to that group of CFOs, I think there's still a lot of confusion around the meals and entertainment. For some reason it's front of mind. Being from Chicago, the line I often will say is well how it impacted your Hawks tickets and whether or not you get the deduction for your Hawks tickets. I'll tell you, nothing actually gets a group of CFOs more interested in tax law changes [than] when you start talking about the deduction for their hockey tickets. So I think there are still a lot of areas of confusion with that.

It really brings [us] back to another point that I think is important to keep in mind. We had a lot of changes obviously with the tax reform changes, but we're still operating under many of the existing provisions of the tax law. The meals and entertainment area is a perfect example of that because you had exceptions under section 274 that are still part of the tax law, and [they] probably were misunderstood by a lot of people, myself included. I feel like my understanding of that area really evolved as we went through the first filing season. But there still is a lot of misconception, confusion around what really is deductible, what isn't deductible, what's 50 percent, what's zero percent entertainment. Even the fact that you still can have 100 percent deductible entertainment as long as you meet some of those exceptions under the existing tax law.

So I think there's a lot of confusion there. I think one that is maybe less confus[ing], again kind of just living through it, is another area that I expect to have some reactions to, [is] the qualified transportation fringe benefit area. When talking to taxpayers about that area, that's probably the one that I got the most pushback on - personally, as well as those that I talked to. There's just a sense of why is this limitation here? There was a little bit of shooting the messenger going on a lot of times because it just doesn't resonate with people. Sharing this and giving the updates to this group of CFOs, I was still getting that. There's confusion over what is this? Why does it apply? Now the fact that we had a repeal as it applies to exempt organizations, with the year end spending bill, now there's a notion of, "well, they got rid of that. I don't have to do that anymore."

Well, no, that's only for that context, right? So there's just a lot of confusion. There was a lot to understand, a lot to digest. So it's very understandable that there's a lot of confusion, but I think being careful about several of these areas and what the source of the information is particularly important. I had given this advice to somebody, and I didn't necessarily even realize (it was a presentation I was giving), I said, "you know, you really have to be careful about the date of articles that you're reading when you're going to go in and refresh yourself on or take a deeper dive in on some of the provisions of the Tax Cuts and Jobs Act." The context was related to section 199A, because as our understanding of it evolved, as we got the guidance, there were things that maybe you would talk about in the beginning that now we know you can't do, right?

For example, the "crack and pack" was something that maybe in the beginning people thought, "well maybe this is something that can work." Well, we all know with the guidance that that doesn't work right? They did put an anti-avoidance provision in there around that. So that's a little bit more of a straight forward example, but just being aware of the source of the information because again, there is a lot of information out there. So, I think that's probably the overarching thing I would say and the advice that I'd give. Like I said, I didn't even realize that perhaps the wisdom of what I was saying is you got to watch the date on what you're reading and be mindful of the source.

David Stewart: Now if there was one area the IRS could clarify that would make your life easier, what would that be?

Damien Martin: You know, I think that that's a really good question. I kind of almost want to say, "well I don't know. How much time do we have here? Can we kind of dig in?" You know, but if I'm going to boil it down to one, I'm going to go with an overarching, more permanency in the provisions, particularly on the individual side. Obviously with these changes, the majority of individual subset after 2025. That's creating a lot of challenges when it comes to doing planning. Really in the post-TCJA environment, you have to take a multiyear, even multifaceted approach to doing planning. I mentioned this in my introduction that I work with a lot of closely held and family-owned businesses, as does my firm. So as you go through that, all of it funnels down to the individual return or maybe it's landing on a fiduciary income tax return.

So you're dealing with all these things sort of coming down together on these returns, and you can't just take a one year approach because income may change over the period, may have different facts. You're also going to have the fact that after 2022 we're going to see some changes with some of the provisions as they are under current laws. So the fact that we're not even certain of what the rate is going to be going out beyond 2025 really makes modeling very challenging. It really makes some of this longer-term planning challenging. I think that is probably the one thing that I would try to change is to have that sense of permanence. Really when you're talking with somebody and trying to help them understand what this means for them, the bottom line for them personally, it is sometimes very overwhelming. When you have to layer in the fact that I have to sometimes say, well, it depends on what your crystal ball says for the future.

Of course we all know that tax law is only as permanent as it is until the next tax legislation comes along and changes it, right? So there's always that nature, but the fact that we're already on the clock with some of these things just really creates a lot of challenges when trying to actually implement some of these planning techniques for individuals.

David Stewart: Alright. Now coming at it from a slightly different direction, if there was one part of the TCJA you could just get rid of, what would that be?

Damien Martin: I'm going to go with the qualified transportation fringe benefit piece because I think that that is very, very difficult. There's a lot of work, and I don't mean this necessarily as a criticism, we have the guidance in that area. In the four-step process when you own or lease the parking lot and going through that, but there's just some gray areas and sometimes you're going through some of the, we'll call it numerical gymnastics, right? You're running through all these calculations that at the end of the day maybe it doesn't amount to a very large number. I think that that's one that's been challenging and has caught a lot of people off guard when it comes to actually applying it.

David Stewart: Speaking as a CPA, what piece of advice would you give to a taxpayer before they come to see the CPA? What do they need to do to be ready?

Damien Martin: The general advice that I give people is kind of twofold. One is gather all of the normal things that you would, all the documents and things like that. There's the old throw them in the shoe box and bring them along to the CPA, which I will say that with a lot of technological advances we're able to avoid a lot of that. Now, we can go straight from the source documents. That's the straight forward stuff. So that's the starting point. You need all of that information. Again, making sure the reporting is right.

Then thinking beyond that and thinking about some of the other life changes that happened during the year that maybe you don't necessarily think to mention to your CPA. Things like getting married and maybe getting separated or ones that you think of because you've got to put the taxpayer's name on there and maybe you're not filing married, filing joint anymore, that sort of thing, or maybe now you are - those are a little bit more straight forward, you know, new dependents. Those are a little bit, again, more straight forward but things like did you do an estate plan? Did you make changes to some of the retirement, whether it's beneficiary designations, do some planning there? Did you start a new investment? Did you get involved in a new activity? Move to a new state?

So again, some of the things that maybe on the surface didn't directly land in those documents. You know, there's the tax forms that you got that you all kind of gathered up to make sure they kind of have this holistic answer. There's a lot of things that in this post-TCJA world that you can do that would be more proactive but you kind of have to know about them on the front end. So the more that you can bring of the intersection of tax and life together, I think that that's the best approach to take when it comes to getting ready for that meeting with a CPA.

David Stewart: Let's talk about your podcast. You host Simply Tax and you launched roughly the same time that we launched our podcast here. Can you tell us a bit about it and its origin?

Damien Martin: Yeah, it's been a passion project. I will say it really started, as I mentioned, part of my many hats that I wear with our firm. It actually started as an internal project to educate our people on some of the tax law changes and things that were coming down. I started out in [my] career as a professional [and] I always thought, "gosh, you know, I wish I could get a deeper dive on something that's evolving" or being able to kind of feed my tax mind is the way I would look at it. I also wanted it to be on my way to work or if I'm going to go for a jog or something like that. So that was sort of what I had always wanted. So then when it came up that we were looking for ways to be able to provide that for particularly our up and coming developing professionals, I thought okay, well a podcast would be perfect for that.

So we started that internally, like I said, and went for about nine months that way. Then we particularly, actually with the buildup of what ultimately was the Tax Cuts and Jobs Act, we ended up getting a lot of requests [like], "Hey, I'd like to share that with somebody that I'm working with or another advisor." So we then kind of flipped the switch and made it external as well. So generally the approach that we take is try to have practical conversations around all things tax. We throw in some non-tax related things as well because it's all related. You know, somebody that's a taxpayer that's having to understand this stuff. So that's really kind of our core audience. We're focused on businesses, their owners, and their advisors, and all issues that relate to that mix because at the end of the day it all does. Like I mentioned, if you particularly wanted it to pass, it all funnels down to that ownership group.

So a goal of mine is always to try to help educate others on the tax law, and particularly business owners or taxpayers and helping them better be able to understand what all these provisions mean for them at a personal level. That's really been the goal, and it's just sort of evolved from there, and [I've] had some great opportunities to talk to some great tax people and pass along that practical, "what does it mean for me" perspective.

David Stewart: Tax season is a busy time. How do you take care of yourself? What do you do to stay sane?

Damien Martin: Yeah, I will say that it's evolved. Probably every year there's something that's a little bit different that I do. So I'll share my focus this year. I will also put out the giant caveat that I by no means am perfect at this. You know there's going to be ups and downs, and I'm not always going to get it right cause I don't think there's a silver bullet. At least if there is one, I would like to know it and please somebody tell me because it is this really compressed time, obviously all of the stereotypes about tax season. As I've gone through, I don't like to look at it as survived, but maybe that's the right word, a number of tax seasons, you get more under your belt.

This particular year I'm focusing on systems and trying to have systems for things. This has been probably a focus of last [year] as well. So what I mean by that is, and then maybe this even goes back to the [book by] David Allen Getting Things Done. I don't know if you've read that book. It's a very disciplined system for approaching basically all of the things on your to do list. So I'm not going to profess that I'm far down that road. There is a saying that he has: open loops diminish outcomes. I think that's so true. There's a lot of things that are bouncing around in my mind during tax season. So the way I try to keep sane is let me get them all at least written down so that I can start to figure out what am I going to do with it and create actionable items for them, right. Because there's a lot of information in a very compressed period of time. So that's one of them.

I think the other is, and I know that you're a fellow runner as well, but being very intentional about fitting those runs in. That's the way that I do it. My advice to anybody is find your running, whatever that is. You got to take care of yourself because if you can't take care of yourself, it's really hard to take care of other people. So how are you going to take care of your clients and those that are relying on you if you don't take care of yourself? I'll be honest, I love running and it's great but when the going gets tough, sometimes my natural inclination is to say, well, I got to push harder. I got log more hours trying to solve this tax problem I'm working on, or whatever it might be. That's generally the wrong answer. You know, I got to get out there and make the time and actually make that happen. So that's another.

And I think the third is, maybe it fits in that self-care bucket of kind of trying to feed my mind. I found that there's been years where I've sort of like gone in the bunker. My friends will even joke of like, "well there goes Damien, it's tax season again. [We] won't see him for a couple of months." All the stereotypical things that you hear. I think if you truly kind of put the blinders entirely on, you just sort of feel like you lose track of everything going on around you, the world going on around you. And I think kind of feeding your mind whether, honestly a lot of the ways that I do that is I feed my tax mind. So I enjoy, I'll make a plug for your podcast, I listen to the podcast, things like that.

You've got to keep in touch with everything that's going on. So really stay sane, especially with all the changes that we've seen as of late. I mean it's just not possible to truly be able to always be thinking about all of these changes. It takes stepping back and be able to keep feeding your tax mind, keep feeding your mind to be able to put them into perspective, to think about them. I've had a lot of conversations with colleagues [and] other practitioners. The biggest fear last year, and I still have it, is what am I not thinking about that I need to be thinking about when it comes to preparing this tax return or helping this person with this consulting project? It's so multifaceted in these provisions of the tax law, and there's always been a lot of overlap in the interplay, which quite honestly I find very fascinating and I enjoy. At the same time you just feel like, "gosh, am I forgetting something? Am I not thinking about some angle here?" I think if you're not doing those things to kind of self care, to stay sane, it becomes very difficult. So kind of a multipronged approach to sanity perhaps, if you will, for tax season.

David Stewart: I think that's good advice. Damien, this has been great. Thank you for being here.

Damien Martin: No, thank you for having me. I appreciate it.

David Stewart: Right after we finished this interview, Damien turned things around and interviewed me for his podcast, Simply Tax. You can find a link to that in the show notes.

And now coming attractions. Each week we preview commentary that'll be appearing in the Tax Notes magazines. I'm joined by Content and Acquisitions Manager Faye McCray. Faye, what will you have for us?

Faye McCray: Thanks, Dave. In Tax Notes Federal, Arvind Ravichandran and Maurio Fiore examine recent IRS guidance on cryptocurrency. Cameron Cosby and Libin Zhang explain why mergers of publicly traded REITs should be currently taxed. In Tax Notes State, Paul Bogdanski, David Dorner, and Jeremy Gove argue that while Illinois lawmakers recently enacted a measure to address potential discrimination against remote retailers, the remedy is still discriminatory and will probably result in litigation. Charles McLure Jr. examines the need for marketplace facilitator legislation. In Tax Notes International, Aleksandra Bal considers blockchain’s potential to solve the problems in the EU’s VAT systems. Bruce Zagaris provides an overview of the major developments in international tax enforcement in 2019. And on the opinions page, Carrie Elliot considers the utility of EBITDA as a measure of financial performance. Roxanne Bland wonders if sin taxes are the right approach. Robert Goulder considers the dangers of cascading taxes and the pitfalls of derivative tariffs. And Marie Sapirie writes that meetings taxpayers and their lawyers request with Treasury and the IRS aren’t problematic lobbying.

David Stewart: You can read all that and a lot more in the February 24 editions of Tax Notes Federal, State, and International. That's it for this week. You can follow me online at @TaxStew, that's S-T-E-W. If you have any comments, questions, or suggestions for a future episode, you can email us at And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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