Tax season, interrupted
The filing season, like every part of our lives, has been significantly impacted by the coronavirus.
“It was going smoothly at the beginning,” said Roger Harris, president of Padgett Business Services. “It all changed when the virus became not just a daily part of our lives, but almost the entire focus of our lives. We’re getting to the point where we’re concerned, especially for our business clients, how many will still be around when this ends. And now, we just don’t know how long it will last or what the lasting effects will be. The issue is to stay as connected as you need to be without being overly connected.”
“For me, the tax season has been two seasons, pre-corona virus and post-coronavirus,” he added. “And it’s taught me not to plan more than one day at a time.”
The extension of the filing and payment date by the Treasury to July 15 is a helpful step, observed Mike Greenwald, a partner at Top 100 Firm Friedman LLP.
“It’s a worthwhile step, but for a lot of people affected by the coronavirus, they’ve already paid their tax in the form of wage withholding,” he said. “Where this will be helpful is for the millions of small businesses who had to curtail business or shut down altogether. Now they won’t have to pay their remaining balance from 2019 or their first quarter estimated tax until the extended date.”
The effect of the virus has still to be worked out, Greenwald noted. “I think we’re discovering the impact of our IT backbone and the ability of IT support as more [people] go to work remotely,” he said. “Whereas many of us looked forward to having clients come to the office or going to see them, we’re having to figure out ways of gathering information and maintaining relationships in an era of social distancing. We’re spending more time on the phone and learning how to use social networking. I’ve learned that it’s harder to tell a joke over the phone.”
Security is ever more of an issue in a remote environment, he said: “One of the things that we’re really emphasizing to our staff, our clients and our friends is the importance of cyber diligence. It’s even more important now that we’re working from home and don’t have the same firewalls that we had in the office. Be extremely careful when you open emails, and if you print or make a copy of any client information at home, don’t throw it away — make a pile until you can get to a physical disposal place. Working from home means we don’t have the same types of security tools that we have in the office.”
Jess Coburn, president and founder of Applied Innovations, agreed. “Hackers target the financial services industry due to the value of data it possesses,” he observed. “And the most frequently targeted are CPAs and those who prepare tax returns.”
“Regardless of the size of your practice, you are a target,” he said. “Most small- and medium-sized businesses don’t believe they’re targets. In fact, they think it’s only a big business or government problem, but that’s not the case. Two-thirds of all small and medium-sized businesses are attacked in a 12-month period.”
No more ‘business as usual’
While the federal extension is a boon to many, it complicates matters for those in states that have not extended their deadline. “For states that haven’t extended their due date, the federal return needs to be complete by April 15,” said Avery Neumark, a tax partner at Top 100 Firm Marks Paneth. “Those numbers carry over to the state return.”
“Many people that need tax preparers are taxpayers working from home, or who go to storefronts that may be closed,” he said. “That makes it difficult to do ‘business as usual.’ It’s true that working remotely has become much easier, but it’s not perfect, and it’s not as streamlined as doing it from a regular office.”
The coming of the coronavirus has ushered in a new set of risks for CPAs, according to Suzanne Holl, CPA and senior vice president of loss prevention services at professional liability insurer Camico.
“We’re monitoring developments and providing risk management guidance and resources to our CPA firms as they navigate through this difficult time,” she said. “Our advice spans several key areas of their practice. These include workforce issues, as firms try to understand how best to protect the safety of their personnel as well as how to apply some of the new laws that have been promulgated, including ‘stay home’ orders as well as the Families First Coronavirus Response Act; risk management implications associated with employees working in a remote capacity; and appropriate client communications related to the firm’s new working environment and changing deadlines.”
In many cases, individuals and businesses will be forced to raid their savings, IRAs, 401(k)s and other retirement plans to manage the financial impacts of coronavirus, according to Robbin Caruso, CPA, co-managing partner of the National Tax Controversy practice at Top 100 Firm Prager Metis CPAs.
“Which funds are utilized should be managed carefully, as there are consequences to taking withdrawals from retirement funds since these — non-Roth funds — become taxable income,” she said. "And early withdrawals, with some exceptions, come with a 10 percent penalty.”
“The extension of the filing and payment due dates to July 15 applies to individuals, trusts, estates, corporations, and other noncorporate taxpayers such as the self-employed,” she said. “It covers income tax, ordinarily due April 15, and also the first quarter estimated tax. They haven’t addressed the second quarter estimated tax yet, so currently, the second quarter estimated tax is due before the first quarter.”
Caruso noted that Code Section 7508A gives the IRS the authority to postpone the time to perform specified acts for taxpayers affected by a federally declared disaster. “This may include waiving the 10 percent penalty, allowing more plan loans and longer payback periods,” she said.
On Tuesday morning, the Senate appeared to have smoothed out differences between both parties and was about to pass the “Phase Three” stimulus bill.
According to Julio Gonzalez, CEO of Engineered Tax Services, provisions in the bill include temporarily increasing the threshold of deductible business interest under Section 163(j) from 30 percent to 50 percent of EBITDA in 2019 and 2020; allowing a full five-year carryback of net operating losses from 2018, 2019 and 2020 with no 80 percent limitation, which was eliminated in tax reform; and a technical correction to the Tax Cuts and Jobs Act cost recovery period for qualified improvement property.
“Due to a mistake in drafting the TCJA, qualified improvement property had to be expensed over 39 years, but now can be immediately expensed, if this correction is included in the final version of the bill,” said Gonzalez.