How tax practitioners viewed filing season, plus ERC and BOI updates

Melanie Lauridsen, vice president–Tax Policy & Advocacy for the AICPA, joined the Journal of Accountancy podcast earlier this month to discuss the latest developments related to several items of note for tax practitioners.

Lauridsen shared data from a survey of members about IRS performance during tax filing season. She also analyzed recent IRS proposed regulations related to interest recapture on excess COVID-19 credits.

In her previous podcast update, Lauridsen focused on IRS data related to its performance during filing season. Lauridsen said that detailed information will be coming soon on the Tax Section Odyssey podcast related to the employee retention credit.

What you’ll learn from this episode:

• Updates related to employee retention credit (ERC) claims.
• Why ERC claims labeled “medium-risk” by the IRS are on hold.
• Lauridsen’s analysis of proposed regulations released by the IRS earlier this month.
• The focus of a Maryland opinion on beneficial ownership information (BOI) reporting requirements.
• The “awareness issue” related to BOI reporting.
• Why Lauridsen said that the sentiment of tax practitioners is not in alignment with that of the IRS when it comes to IRS performance during filing season.
• The “safe harbor” that could be offered by a congressional bill.
• Updates on AICPA advocacy work with several entities.

Play the episode below or read the edited transcript:

To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Neil Amato: Welcome back to the Journal of Accountancy podcast. This is Neil Amato with the JofA. I’m joined again by Melanie Lauridsen, Vice President–Tax Policy & Advocacy for the AICPA. This is a special collaboration episode between the JofA podcast and the Tax Section Odyssey podcast. You’ll hear the conversation on several tax topics right after this word from our sponsor.

Again, welcome back. Melanie Lauridsen is our guest. She is a repeat guest. Melanie, today, as we record, it’s early July, and we’re going to focus in particular on three topics: The employee retention credit or ERC, beneficial ownership information reporting or BOI reporting, and then a member survey about IRS performance in tax season.

It sounds like there have been more than a few updates recently on those topics. Let’s dive in. ERC first: What’s the latest from the IRS and what does that mean for our members?

Melanie Lauridsen: Neil, thanks for having me back and yeah, there definitely have been some updates. As you know, the IRS did make an announcement around ERC and there are a couple of main points that they wanted to bring out.

The first one is that the IRS made a call to action for Congress specifically asking to retroactively stop processing ERC claims.

Also, the second piece of it is for Congress to extend the statute of limitations, but very narrowly defined, and it really is only for IRS assessments. In other words, if a taxpayer wants to make an amendment on their own free will, the statute of limitations will not be extended to that. But if the IRS notices something, says something, or is talking with you, and they recognize there needs to be an adjustment, then you can move forward and make that amendment.

This has some implications, obviously, for our members, specifically the retroactive aspect of it. Now, they worded it differently because there’s the Wyden-Smith bill, which we’ve talked about where that is retroactively stopping making valid ERC claims.

In this case, it is that the IRS has no longer to process claims. It still has that same effect with members and does bring a little bit of nervousness to people. What that really means is that our members really need to have conversations with their clients if they have a valid ERC claim that hasn’t been filed.

[In] those conversations, people need to make it clear to the client that, yes, we can do the work, but there could be either the retroactively where the IRS stops processing claims, or there could be a bill that says that no longer, since a certain date, they don’t have to accept claims. There’s a little bit of risk associated with that. I think in the last time we spoke, we spoke about how there’s an unknown around that date and therefore there’s uncertainty around it, and clients need to be aware of the risks associated with that.

The other important aspect of this announcement is where the IRS indicated that they have bucketed all these claims into three groups. There’s the low-risk, medium-risk, and high-risk.

The high-risk is where there are clear signs of error within the claim. Now, couple of things I need to make sure people understand. We don’t know the criteria that the IRS is using to categorize people. They are not making that public. The other thing, too, is you cannot call the IRS and ask what bucket you’re in. You just won’t know. They can’t help you on that front.

What that means is if you’re low-risk, the IRS is trying to process that claim as quickly as they can so that people can get the refunds back. If you’re a high risk, they’re trying to process that claim also as fast as they can to be able to deny those claims. Now, if you’re medium-risk, that’s the bucket where you’re stuck and it will be a while before they actually look at those claims.

Amato: That medium-risk bucket, do you recall: What’s the approximate percentage that maybe that has?

Lauridsen: I know that the IRS in their announcement gave a broader range of it, but in a conversation with IRS executives, I was told 57%.

Amato: Good to know.

Lauridsen: That’s a big number.

Amato: It is a big number. A lot of people still in limbo. And maybe lost in the shuffle: Can claims still be submitted during this period?

Lauridsen: I get that question quite a bit, and there’s a little bit of confusion around it. Some people think that claims, you can’t file them. If you have a legitimate claim, you can still file it. The problem is centered around is the IRS going to process it or will it not be considered a valid claim? It goes back to those conversations that our members need to have with clients because we really just don’t know what will happen with the claims.

Amato: Does it surprise you the number that were labeled high-risk?

Lauridsen: Not based on feedback that we’ve seen from our members and other external stakeholders. We do know that there were ERC mills out there promoting the claims and they would tell people “you absolutely qualify,” when they absolutely didn’t.

We also know of some of our members where they flat out told the client “you don’t qualify,” but the ERC mills were telling them, “you do.” Then they went off to the side to go get that claim because it was a lot of money for some of these people, and money was talking.

Amato: Now, I guess also related to the ERC, on July 1 the IRS published some proposed regulations, so it’s hot off the presses for us. What can you tell me about these proposed regs.?

Lauridsen: The IRS did drop proposed regulations. These proposed regulations, they provide that the IRS will assess an underpayment of tax on any overpayment interest paid to the taxpayer on an erroneous ERC fund. In other words, not only would you need to pay back the overpayment of the interest portion that you received of a claim, but you would then also have interest penalties on top of it.

One thing to note with the proposed regs. is it recognizes that the current regulations don’t address the recapture of interest paid. They also note that the proposed regulations are to apply only to interest paid after the issuance of the proposed regulations, so not before. It’s still very unclear as to the payments – what about the payments are already went out with or without the interest, and whether the IRS will attempt to recapture that interest? There’s just still a lot of confusion around it. As we get more clarity, we will also provide that to our members.

Amato: We will post some pertinent resources and also recent JofA coverage of this news and other news we mentioned. Melanie, I mentioned JofA resources, are there other resources that you’d like to recommend that maybe I’m not aware of?

Lauridsen: Absolutely, Neil. The Tax Section Odyssey podcast will be doing a deeper dive around the questions that our members and their clients may have, and that should be posted around the same time as this podcast. (Editor’s note: The episode Lauridsen mentioned is scheduled to publish the third week in July).

Amato: Excellent. Now let’s talk a little bit about BOI, beneficial ownership information, that reporting requirement. What’s new on the BOI front?

Lauridsen: There’s quite a few different little updates here. But most recently [the] Maryland attorney general did actually provide and release an opinion on whether assistance by a CPA, with the beneficial ownership information reporting requirement of the Corporate Transparency Act, would constitute the unauthorized practice of law [UPL].

The Maryland attorney general made it very clear that the determination of UPL is fact-specific and that the opinion is only a guideline because, again, they have to take a look at each and every single case.

Making clients aware of the BOI reporting requirements, guiding them through FinCEN’s FAQs, through the compliance guide, helping [the client fill out] the BOI reporting form, guiding them through questions and answering questions for them — all of that is not considered unauthorized practice of law, according to the Maryland attorney general.

If you were to fill out the report on behalf of a client without connecting with the client, there might be some issues there. Also, if there’s just a lot of uncertainty and you know that legal knowledge is needed, a legal analysis to determine who a beneficial owner is, then you really should be turning to a lawyer to help you answer those questions.

What I’m telling people is what we’ve been telling members all along, that a CPA will need to use their professional judgment when they engage or work with a client, and they’ll have to determine where that line gets drawn as to whether or not a lawyer is needed. If it’s a very complex business arrangement, most likely, you will want to include a lawyer.

Again, this is all very in line with what we’ve been telling members, and it’s also similar to what other states have said. But no other state has actually put it into writing, and there have been no other opinions. So far, Maryland is the first.

Amato: Thanks for that update. Now, I understand also that I guess you’re working with congressional staffers on a bill being drafted on BOI. What is that bill designed to do?

Lauridsen: Actually, we are working with Congressman [William] Timmons’ office and that bill actually works well with the Maryland opinion. The hope is that the bill would be able to avoid having to go to all the many multiple jurisdictions and the bill would be able to take care of all this all in one fell swoop. Specifically, the bill offers two aspects of relief which are a big concern to our members.

Number one: The bill would offer a safe harbor for CPAs who do their due diligence when filing the BOI report on behalf of a client. In other words, if you get information, you have a conversation with the client, you do that due diligence, and yet the client gives you some fraudulent or false information, that you would not be held liable for that.

The second piece that the bill does: The bill flat out states that services under the Corporate Transparency Act are not considered unauthorized practice of law. That really does go a long way in helping with the various states because when the federal [government] gives that nod, an indication, a lot of the states would most likely fall in line with that.

Also, I do want to connect on the other types of work we’re doing, not only with Congress. We have worked with a lot of external stakeholders and external coalition members because this concern is not a specific AICPA issue. This is a broader issue for all small business entities.

Those two points that I brought up from the bill, those take care of the biggest pain points. But the third pain point really is the 30-day period to update the BOI report for an error or a beneficial owner’s updated information. We’re working with FinCEN on this since FinCEN actually has authority to make this change.

Collectively, we are working with [Capitol] Hill, we are working with external stakeholders, and also FinCEN, and we’ve actually pulled everybody together to start having conversations so that there is awareness of what our pain points are, and what exactly we can do to be able to resolve a lot of these issues.

FinCEN does have concerns, and they’ve made it very clear that this year they’re focusing on awareness and not enforcement. Part of the reason is, so far, keep in mind we’re seven months into the year, FinCEN has only received just over 2 million BOI reports. Remember, they’re asking for 32.6 million, so awareness is definitely something of a concern for them.

Stay tuned, there will be more to come.

Amato: Thank you for that. You mentioned Congressman Timmons, that’s, I guess, Rep. William Timmons from South Carolina, is that correct?

Lauridsen: Correct.

Amato: Great. Yes, we’re talking about all these updates and potential changes and things that people want to do but currently the BOI reporting requirement, it remains the same for most small businesses, right?

Lauridsen: It does and that’s what makes it very scary. A lot of people have heard about the court cases where they said the Corporate Transparency Act was unconstitutional. But again, that only applied to a small sliver of the population of the members of [the National Small Business Association].

So, it’s very confusing. The rules themselves are confusing. But unfortunately, everything remains the same, and people, unless you’re one of those 23 exceptions, you still need to file.

Amato: Moving on to IRS survey results. It’s not an IRS survey, but it’s a survey about the IRS. In our previous podcast, we discussed how the IRS perceived how the filing season went. The IRS released some data showing that they answered [88]% of calls that came to the IRS.

The AICPA conducts an annual member survey immediately after the filing season to see how the members felt about IRS service. What does the feedback say, and is it in alignment with what the IRS said?

Lauridsen: Oh, Neil. No, it’s not in alignment with what the IRS said. This year, overall, the IRS did better than last year, which was also an improvement from [the] prior year. But even so, the bottom line is we are not at pre-pandemic levels. The IRS really has a long way to go for us to get to the service that we deserve.

For example, the PPS line did show improvement from our members’ perspective, but approximately 56% of our members were able to get through to the IRS on a consistent basis, while 29[%] of our members had hit-or-miss calls, and 15% of our members couldn’t get through at all.

The wait times, again, keep in mind the IRS is saying it’s about three-minute wait time, those did improve. This year, only 28% of our respondents had to wait an hour or more, compared to 63% just two years ago. Yes, that’s an improvement, but 28% of our members having to wait over an hour? That’s a little bit painful there.

The biggest pain point is the quality of service our members are getting. Is the IRS able to answer your question, or do you need to be transferred? At which all of us know that if you get transferred, you pretty much get transferred multiple times, and, of course, there’s no guarantee of a resolution.

Sadly, we found that only 37% of our members were able to get consistent support from the IRS, meaning a resolution, while 37% rarely or never were able to get a resolution.

Amato: Among our members who are tax practitioners, are they satisfied with the service the IRS provided during filing season?

Lauridsen: Neil, surprisingly, our members are feeling more optimistic about how the IRS is doing, and they’ve improved for the last two years with the IRS. It has definitely helped that the IRS is answering the calls.

However, to your point, almost half of our membership does not think the IRS is on the right path.

I should also let you know, too, that when we get these survey results, we actually communicate this directly with the IRS and we let them know. Our work is cut out for us as to what we need to be able to continue moving forward with IRS services, and we’ve definitely portrayed that to the IRS.

Amato: Speaking of moving forward, for the 2025 filing season, what would you say are the top concerns facing AICPA members?

Lauridsen: Given that it’s an election year, no shocker that the number one concern for our members, and number one concern comes in about 29%, is the impact of legislative changes. What I was surprised to see was that the lack of guidance actually came in only at 17%. But I actually expect that to go up considerably once we start to see those legislative tax packages becoming law and we are going to need guidance from the IRS and Treasury.

Number two on the list, coming in at about 27%, also no surprise, is the continued delay, which includes the written correspondence and processing of information with the IRS.

I should also note that we did have an option on this survey for people to click “other” and fill in the response, and that came in about 5%. Overwhelmingly, everybody was talking [about] the delay of the brokerage statements and delayed K-1s, which create workload compression areas. That is definitely something that we’ve been monitoring and we’re starting to work again, and we’ve been keeping an eye on it for a few years.

Neil, all this is really to say that we have identified some issues. There’s a lot of work that needs to be improved upon with the IRS, and we’re moving forward with it.

Amato: K-1 in particular, that was a term I hadn’t even thought about or heard in a while, so I guess it’s still out there, along with others.

Melanie, we appreciate this update as we close out our July recording. Again, we’re recording early July. This is due to publish in mid-July. What would you like to leave listeners with as a closing thought?

Lauridsen: I think our members should be aware that we are monitoring, we definitely love hearing from them, we take it to heart, and we definitely push for their needs to be able to find resolutions.

Sometimes the work is very slow. But we do start to see results and we do start to see the needle moving. Hopefully soon, we’ll have some resolution with ERC and some answers and guidance, and we’ll start seeing resolutions for BOI, too.

Amato: That’s great. Melanie, thank you very much.

Lauridsen: Thank you, Neil.