Accountant group asks IRS for more time to make S corp election
The National Society of Accountants wants the Internal Revenue Service to provide a six-month extension for businesses to make an election to be treated as S corporations for this year, arguing the current deadline of March 15 is just not enough time to make a decision given the uncertainty surrounding the new tax law.
The NSA sent a strongly worded letter to IRS acting commissioner David Kautter, contending the current deadline is unfair to taxpayers and tax professionals alike. In the letter NSA executive director John Ams and NSA president Brian Thompson asked for the deadline to be extended until September 15 to give the IRS more time to issue the proper guidance and for tax professionals to analyze it and advise their clients.
The IRS issued an updated Priority Guidance Plan last month that includes guidance on Section 199A as a priority, with the aims that all priority guidance will be issued by June 30. But that date is more than three months after corporations need to make an election to be treated as an S corporation for the current calendar year.
“None of the terms used in Section 199A have been defined in any guidance issued by the IRS since the enactment of the provision,” they wrote. “Nevertheless, NSA members as well as tax professionals across the country are being asked by clients to make our own interpretations of Section 199A, even as IRS and Treasury Department personnel have made numerous speeches acknowledging that the scope of this Section could change markedly depending on how official pronouncements choose to define some of the terms mentioned above.”
“The March deadline is more than three months in advance of the June 30 date by which the IRS plans to issue priority guidance for tax changes that went into effect by the approved Tax Cuts and Jobs Act,” Ams said in a statement. “The Tax Cuts and Jobs Act enacted in December of 2017 made substantial changes to the tax law as it relates to pass-through entities, including S corporations, with the introduction of a new Section 199A of the Internal Revenue Code. What’s missing is proper guidance.”
They noted that Section 199A is complex and confusing and the effective tax rate can vary significantly, depending on the definition of various terms.
Thompson pointed out that IRS and Treasury Department officials have made a number of speeches acknowledging the scope of Section 199A could change significantly, depending on how official pronouncements choose to define some of the terms, which include “qualified business income” (QBI), “qualified property,” and “W-2 wages” properly applicable to QBI. He also noted that Section 199A limits the deduction depending on whether the business is deemed to be a “specified service trade or business.”
“Making an election in March when the guidance on which such election may be based will be issued in June is unfair to taxpayers, tax professionals, and the tax system itself,” Thompson said.
As co-owner of Bailey & Thompson Tax & Accounting, P.A., a CPA firm in Little Rock, Ark., Thompson knows first-hand the challenges facing tax preparers when tax changes are made without the necessary supporting guidance available.
“NSA members as well as tax professionals across the country are being asked by clients to make our own interpretations of Section 199A,” he said. “This is dangerous territory.”
Assuming the regulations on Section 199A are actually issued by June 30, the NSA believes any entity considering making an S election should be given a six-month extension, until Sept. 15, 2018.
“By allowing a six month extension to Sept. 15, 2018, for a corporation to make an election to be treated as an S corporation for the current calendar year would afford time for all affected parties, as well as their tax adviser, to read and understand any such regulations and how they may impact their tax liabilities,” said Ams.