Tax professionals have reached an important milestone in a year spent working overtime to parse out massive regulatory packages and navigate pandemic relief programs run by multiple government agencies.
Thursday is the filing deadline for taxpayers who requested an extension to file their 2019 tax return, capping off a longer-than-normal filing season that came amid a global pandemic. Adding to the pressure is a deadline from IRS and Treasury to finish all 2017 tax law guidance this year, which has kept practitioners busy with a steady stream of guidance on both the tax law and Covid-19 aid. More than 100 packages of proposed and final regulations related to the tax overhaul have come out so far this year, including the September release of the long-awaited second installment of bonus depreciation regulations (T.D. 9916) and nearly 300 pages of final rules (T.D. 9922) governing foreign tax credits.
To cope, Logan Graf, a CPA and owner of The Graf Tax Co. PLLC., said he is monitoring what is being released and prioritizing guidance that is most likely to affect his clients. He is pushing everything else to the backburner until he has more time to catch up.
“It’s really too hard to keep track of right now,” he said. “I think November and December is going to be the time to figure out what happened.”
It can be a huge headache for professionals to get a lot of guidance at once right before a filing deadline, like Thursday’s, he said. Practitioners have to hope that they haven’t overlooked important provisions or that the positions taken on their clients’ returns aren’t incorrect due to the new information, he said.
Taxpayers and their advisers are concerned that they might miss something, given the volume of information being released and the fact that the IRS is posting rules and frequently asked questions to its website—sometimes without a notification or alert.
Amie Kuntz, a CPA with RubinBrown, said it has been so busy that she has divided rules packages across a team for review.
“It’s extremely difficult to source everything that’s happening on your own,” she said. “While the volume of guidance can be overwhelming, it’s information we need.”
While the high volume of regulation packages from the IRS has been top-of-mind for tax practitioners, the Small Business Administration’s flurry of guidance also caused headaches.
The landmark Paycheck Protection Program, created by the CARES Act (Public Law 116-136), offered businesses low-interest loans that could be forgiven if the money was used mostly for payroll. The combination of struggling businesses and a mad rush to implement meant the SBA worked in overdrive to release guidance about the program—while also trying to rush money out the door.
“There was a time when stuff was coming out at least once a day,” said Chris Moran, an attorney at Venable LLP.
His clients with large PPP loans were coming to him with questions on how to calculate their expenses and whether they would have to pay those loans back. Information was so confusing at the time that some clients returned significant amounts of their loans back only to find out days later that they didn’t have to, he said.
Doug Sayuk, managing partner at Alvarez & Marsal said he has watched for guidance tied to CARES Act provisions such as net operating loss carrybacks, qualified improvement property, and payroll tax provisions. To stay on top of the wave of guidance, his team has been focusing on changes in the final regulations from the proposed regulations.
“There’s only so much time that you have,” he said. “It’s definitely been overwhelming from the standpoint of making sure you get the tax returns out timely, and also going through all the new provisions that are out there in order to make sure we optimize our client’s overall tax position.”
Figuring out new guidance is already more difficult when colleagues can’t simply walk across the office and talk through thorny issues, said Neil Keller of Sikich LLP. He expressed sympathy for smaller firms and sole proprietors without dozens of colleagues to go to for advice and second opinions.
“For the small firms and sole proprietors, it’s really an unenviable task,” he said. “I’ve been in a room with some very smart and well-versed tax experts and we’ve all read the same guidance but we still can’t come to a definitive conclusion on certain issues.”
IRS, Treasury Goals
The IRS and Treasury initially set out with a goal to finish all major guidance from the tax law before Oct. 1. That was an uninformed, aspirational goal at first that became more realistic as time passed, according to a person familiar with the process. The person asked to remain anonymous in order to talk freely about the internal decision-making.
Leading up to that deadline—from about mid-August through the end of September—the level of activity on outstanding regulatory projects increased daily, with some individuals working extra long hours to fulfill the government’s goal, the person said.
Even so, IRS and Treasury had to push the deadline for a few of the projects to mid-December due to the coronavirus pandemic, which forced employees to temporarily adjust to working remotely. Complex rules were particularly affected.
Delayed regulations include final rules under tax code Section 162(m) limiting tax breaks for compensation public companies pay to top executives, and final rules under Section 1061 restricting the ability of private equity and hedge fund managers to get a lower tax rate on some of their pay. Those rules should be released sometime between the first or second week of November and mid-December, the person familiar with the process said.
The new deadline doesn’t encompass revisions to old regulations that were indirectly affected by provisions in the 2017 tax overhaul. Those changes will take years to make as people continue to discover unanticipated effects of the law, the person said.
While the ongoing “avalanche of guidance” has added to the challenges of tax practitioners, Glenn Dance, partner at Holthouse Carlin & Van Trigt LLP, said the directions contained in the rules packages are helpful to pros and their clients.
“The IRS should be commended both for their diligence in soldiering through their own challenges in providing much needed guidance and for the flexibility,” he said. “All things considered, I give this one to the IRS.”
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