A tax marathon check-in

Hosted by Paul Bonner

In this episode, we check back in with two AICPA leaders: Ed Karl, the AICPA’s vice president–Tax Policy & Advocacy, and Chris Hesse, a tax principal in the National Tax Office of CliftonLarsonAllen in Kennewick, Wash., who also chairs the AICPA Tax Executive Committee. They’ll update us on how the 2020 marathon of a tax return filing season is going, whether the coronavirus-related return due date delay until July 15 is long enough, and what other relief taxpayers and their CPAs need. Karl and Hesse discuss findings from their survey of AICPA Tax Section members about the July 15 due date (and the more than 1,000 comments that respondents added), which they described in an AICPA Insights blog post on June 23 and an earlier post by Karl on June 4.

Editor’s note: Days after this podcast was recorded, the IRS in News Release IR-2020-134 announced it would not further postpone the tax filing and payment deadline past July 15. It also reminded individual taxpayers they can obtain an automatic filing extension until Oct. 15 and listed payment options.

What you’ll learn from this episode:

  • How AICPA Tax Section members perceive the ways the COVID-19 pandemic and its legislative and administrative relief have affected the tax filing season and its deadlines.
  • How state conformity with federal income taxes complicates any decision to further postpone filing due dates.
  • Plans for advocating to the IRS for more relief from taxpayer penalties and compliance enforcement.

Play the episode below or read the edited transcript:

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the 
JofA’s coronavirus resources page.

To comment on this podcast or to suggest an idea for another podcast, contact Paul Bonner, a JofA senior editor, at Paul.Bonner@aicpa-cima.com.


Paul Bonner: We’ve already heard from you, Chris, in April, about quick carryback of net operating losses and other similar provisions of the CARES Act, and from you, Ed, back in March about the initial July 15 — well, we don’t call it an extension, we call it a postponed date for tax returns. As I understand it, Ed, members have been of two or three or four minds on whether it ought to be extended further; is that correct?

Ed Karl: That’s right. We have such a diverse membership; they are different size firms or in different parts of the country. We know with the pandemic situation different parts of the country are impacted differently, so we asked them a couple of questions: Whether they could deal with the July 15 postponement as it was — there was a split reaction to that, but a majority said they could. And then the second question asking them if they thought IRS should systemically postpone July 15 further, and they were all over on that. There was a plurality that thought that IRS should postpone till Oct. 15. But I think the key to that whole conversation were the thousand, literally a thousand, comments that they put into the survey by the respondents, and there were many, many questions, comments about their clients’ ability to pay. So, it seemed as if many of those who thought there should be a postponement really were referring to the postponement of the time to pay, with concerns about clients’ financial viability.

Chris Hesse: I think, too, there were quite a few comments that [said], “Why are you making us file a paper extension or file an extension at July 15?” Those comments were in favor of, “Just give us an automatic extension to Oct. 15 without requiring us to make the computations to do the extension.”

We think that there’s some statutory issues with doing that, as far as, what is your statute of limitation, when does the statute of limitation start, when is your assessment date. And I agree, I think the IRS needs to have a firm date as to when this tax return is due, and you have the opportunity of filing an extension. But, yes, it does require more work on the part of the CPA in order to come up with the extension amount, and the paperwork that goes into properly estimating the tax liability that’s due at July 15. We certainly understand that and are not ignoring it, but it’s somewhat of a reality we have to either have a true postponement to some future date or stick with the July 15 date.

Bonner: I was looking at the filing season statistics that you cited, Ed, in your blog post, and as of June 12, I see that the IRS has received 5.3% fewer returns than compared to the same point, roughly, in 2019, but 12.2% fewer returns processed, which is a higher disparity than back in mid-April, that you noted in your blog post. Which suggests to me that maybe what’s happening is that the taxpayers are catching up in filing but the IRS is falling behind in processing them.

Karl: Well, that certainly would be true to the extent that there were paper returns coming in; they have a huge backlog in processing paper in the service centers. They’re in a social-distancing mode just like the rest of the world is, and they have far fewer capacity than normal in the service centers where the paper is. E-filing shouldn’t impact on that because it’s being processed pretty much automatically. So I would suspect that that disparity has to do with paper filing.

Bonner: Perhaps so; I’d have to break that out and look at it.

Chris, I’m wondering, at your firm, CliftonLarsonAllen, what the tax preparers are experiencing right now. I know that Ed’s blog noted just the difficulty — some of the respondents to the survey noted the difficulty — in just carrying on their own activities there in the CPA firms.

Hesse: Yes, we have an emphasis going on now of attempting to catch up to the July 15 date, and we’d like to be caught up by the end of the month. We’re running statistics to see how many tax returns we need to get out on each day in order to hit a target that would catch us up by June 30, so that the people can have an actual Fourth of July/Independence Day holiday weekend and get back to a little bit more normal of a life. Still, I don’t think we can quite achieve that, but there are more hours being put in by people as an attempt to catch up. We had so many people that diverted, as all of the CPA firms across the country did, to working on PPP [the Small Business Administration’s Paycheck Protection Program] loan applications during tax season, that it pushed a lot of the tax preparation and review forward. And now, of course, we’re also concerned that if the July 15 date is pushed back, we’ll have a second wave of PPP work that needs to be done on the forgiveness side, calculating the amount of the forgiveness and assisting in filling out the applications for the forgiveness of the PPP loan, that will interfere with the preparation of the tax returns as you move into the final calculation of the 2019 returns.

It would seem, then, for that reason and also the concerns with regard to complying with state filing requirements, that we really do need to stay with the July 15 date. For all of these states that have an income tax, they’ve fairly much followed the federal due dates and the postponement of the federal due date. The states finally all came into the same conformance with July 15 for the filing date of their tax returns; whether they would acquiesce to another postponement is doubtful, I think. And in any case, we’d have all of the confusion that usually reigns when you have different due dates for the federal return than for the state return, and knowing that you’re going to have to have the federal return done in order to file the state return, it really isn’t going to help any to delay the July 15 date at this point.

Bonner: I suppose not; that’s where state conformity could also be important, couldn’t it?

Ed, I was wondering about the comments that you received in your survey about the clients’ ability to pay their taxes and many cases not even being sure when they’ll ever be able to pay their 2019 taxes. Tell me more about that and penalty relief and compliance mitigation. I understand that there may be an advocacy letter in the works with the Tax Executive Committee on that.

Karl: There is, and partly in reaction to the comments that you’re raising. I mentioned a few minutes ago that there were many, many comments by the respondents expressing concerns about their clients’ ability to pay, their financial viability, etc., which they cited as a reason to postpone the July 15 filing date further. But there were additional comments in there by some of those same respondents saying that even if you postpone the date to August, September, October, or even November or December, their clients still may not be in a position to pay.

And it does get concerning that there would be additional taxes added into that, so, for example, if you postponed past Sept. 15, to the extent that they still owed estimated tax they would still have a third estimated payment, a possible balance due from 2019 — that’s quite a lot of money coming due all at once. So the CPAs expressed concern that even postponing the payment further down the line might not make it any easier for them to pay; in fact, it might make it a little bit more difficult to pay. That was an important reason why we didn’t want to postpone July 15. And as you were suggesting, we are working, our Tax Executive Committee has in the works, a position on penalty relief, compliance relief, or compliance mitigation, to help those taxpayers who find themselves in some kind of challenged financial position.

Bonner: What form might that take? Do you have any ideas about that?

Karl: We’re looking into the exact positions we’re going to take. It’s in development right now, but, for example, you have a taxpayer who had a balance due on the 2019 return, and they were doing well and now they’re hurt significantly by the pandemic in 2020, when they have to pay the balance due. So we’re looking at removing any kind of penalty for the failure to pay at April 15 or, in this case now, July 15; also looking at penalty relief for estimated payments that they might still have been required to pay during 2020 but might not be able to pay. We’re looking at some other things as well, some compliance mitigation, for example, existing installment arrangements that were deferred until July 15; we’re asking the IRS to consider looking at additional relief in that area as well. So this is under development right now and not finished. We’re working on the specific language, but in essence, some kind of broad penalty relief, but putting words to it.

Bonner: I wonder if the IRS might be open to, for new installment agreements that are entered into after July 15, to have some kind of deferral there, too.

Karl: I think, in most installment arrangements, they have to look at financial conditions and they’re certainly going to have to factor in the pandemic impact on taxpayers’ specific financial condition, so that certainly would be a factor for new ones. That is typical for new arrangements, but arrangements that they’ve already agreed to, based on financial conditions, could be months ago, and then they have a further impact on their financial condition. That is really of concern.

Hesse: Of course, there are going to be issues with IRS funding and opportunities for the service centers to be managing through the installment agreements and weighing the opportunities for waiver of penalties. The IRS has this backlog of returns processing that needs to occur, and the IRS has been tasked with regulatory guidance, notices, procedures, coming out of the CARES Act, and the changes in the law that occurred as a result of the coronavirus. And there’s a lot on its plate right now, and of course adding on to that plate will be the different arrangements that Ed referred to with respect to installment agreements and considering waivers, considering relief on the penalties.

Bonner: I noticed that some of the respondents talked about their CPA firms and interacting with clients, the clients being afraid to come to their office to sign forms because of infection. What have you seen, Chris, in your firm along those lines? Anything like that?

Hesse: I’m not aware of major problems in this area. We had converted so many of the clients over to electronic filing and working over the last couple of years at establishing portals so that they could send their information through electronic means. We’ve just been seeing less traffic coming into the offices. Each year seems to be declining. The desire on the part of clients to take the time to sit down with their CPA has declined over the years, and this is occurring before the coronavirus. In some respects, it accelerated the movement towards electronic transmission of the information and I think, too, with some ability of having virtual meetings with the clients.

I haven’t heard of major problems. Of course, there’s always the client, whether it be the elderly client or those who don’t have the technological background or the devices to scan information if they needed to scan it. We always have those. But we, of course, have been taking the precautions in the offices of social distancing and being cautious as to where clients go in the office. There’s been considerable movement over the years to reduce the amount of client traffic through the office and instead meeting with clients in conference rooms that are close to the lobby area. Again, partly for security reasons, information security, but in some respects it’s also in the redesign of the layout of the offices. So, in answer to your question, Paul, I don’t know of any major, significant problems in the area of clients sending their information in or a lack of meeting with the CPA. I’m sure there are instances, though, that that is a problem.

Karl: Paul, just in reaction to some of those concerns: I mentioned earlier about the diversity of our membership, so whereas in Chris’s firm they’re managing OK, we have heard from some who aren’t quite as well. So, the Tax Executive Committee did finish a position recently where we’ve been asking the IRS to relax some of the e-signature requirements for those types of taxpayers who are having some challenge with that in some of the firms. So, we do have a position. It’s partly pandemic-related, but just over the last several years with the technological changes, we feel it’s a permanent solution that IRS should approach and relax the e-signature requirements.

Hesse: The IRS really should have some of the same tools that the legal profession has been using in recording deeds and contracts. It just seems that if it’s satisfactory for state transfer of property between owners, and that’s an adequate documentation of some form of an electronic signature, that tax returns should have the same opportunity. For example, we closed on property here within the last couple of months during the pandemic and didn’t have to sit down at the title company, didn’t have to sit down with the other side of the transaction, didn’t have to even sit down with the notary. Having the notary on the screen and the camera and witnessing the signature was satisfactory, and if it’s satisfactory there, I’m wondering why can’t it be satisfactory for federal income tax purposes.

Bonner: Indeed, indeed. Well, I’ll ask each of you one final question: Where will tax filing season 2020 ever end?

Hesse: In my situation, one tax season blurs into another, but I have a fairly unique role, or an unusual role. For that reason, I shouldn’t speak for the run-of-the-mill tax preparer. I know that there are many smaller firm practitioners, the one-person shop or the handful of people in an office, and their major push, which we’ve been advocating to assist over the years, in workload compression, trying to come up with solutions to reduce the workload compression. And PPP loans happening during tax season just added to the workload compression; it was obvious that we needed to have a postponement of the April 15 due date.

I think that many CPAs would like to have that firm July 15 date so that we can point to the clients and say, we need your information, and we can assure our staff that, yes, the pressure will be reduced for all of the work that we need to get done after the July 15 date when we file the extensions. And perhaps people can go back — not to their normal life, because I don’t think anybody is going to have a normal life for this calendar year. But perhaps that we can have some semblance to getting back to paying attention to our families and a more normal environment in paying attention to our clients and assisting them on other matters rather than just focusing on a compliance matter.

Bonner: That would be nice. And you, Ed, what do you think?

Karl: We talked about all the reasons, and there are many, for holding to July 15. I’ve said this: In the current environment, today is as certain as it gets, with health concerns and not knowing what’s going to happen with the coronavirus. I think that we will substantially get things done through the normal second filing period. Individual extensions are available through September for business returns or into October for individual or corporate returns. So, I think that will happen, but we do know every year there are certain types of natural disasters. Hurricanes have happened in October, and returns have been extended until the end of the year or into January. We’re hoping that the vast majority of CPAs and their clients will stay healthy and they’ll manage through the normal extended periods that are available. And then we’re going to continue to assess how the tax world is moving, almost on a daily basis, and we’ll do our best to make sure that everything works out OK for everybody.

Bonner: Well, we can certainly hope for that. Thank you, gentlemen, both, for your insights on the tax filing season.

Karl: Thank you very much, appreciate it.

Hesse: Thank you, Paul.