The best season ... or the worst?

Tax forms
Tax forms

It’s been the best of tax seasons, it’s been the worst of tax seasons — depending on who you ask.

While some practitioners said that the filing season so far has run quite smoothly despite a number of early problems, there are those who say otherwise.

“Every CPA I’ve talked with says this is the worst tax season ever,” said Deb Rood, a CPA and the risk control consulting director for CNA, the AICPA-endorsed professional liability insurance carrier. “The [Tax Cuts and Jobs Act] is taking a beatdown on all of them.”

“For example, new Code Section 199A has been a recurring issue,” she observed. “Does the taxpayer qualify, and where is the calculation made — at the partnership or the partner level? All of the TCJA changes are really adding time and stress to preparers. CPAs in early March were working week-of-April 15 hours.”

“As we get close to April 15, accountants will be exhausted and that’s when they make mistakes,” she said. “Any tax preparer can think of an instance where they reviewed a prior-year return and wondered who the heck made that stupid mistake, before they realize that they were the ones. And of course, they prepared the return at 10 p.m. on April 14. And they were just exhausted. So this year more than ever, we’re encouraging practitioners to put their clients on extension. Get the extensions in early, and review the file to see if there is any missing information. If there is, ask for the missing information as soon as possible.”

“This has been tax season hell,” agreed Beanna Whitlock, a Canyon Lake, Texas-based practitioner and former IRS director of National Public Liaison. “I have had more ‘do-overs.’ I have researched more, even things that I knew, to keep from making a mistake. I have been questioned more by taxpayers — because what I am telling them sounds like I am making this stuff up. I have run across the craziest of tax situations. And my greatest fear — I’m relying on the accuracy of my software more than ever before.”

“In one word, this tax season is different,” said Roger Harris, president of Padgett Business Services. “Different law, different forms, and different impacts on some taxpayers more than others.”

“You can’t just lay out this year’s tax return next to last year’s to make a comparison — you need software to do it,” he said. “And the new W-4 form is different from the one we all grew up with. It’s now like a mini tax return. Most won’t take the time, or be able to do it on their own. They can just go to their employer and ask them to take out an additional amount in withholding, without having to go through the calculations.”

He noted that many taxpayers are interested in how they were impacted by tax reform — but warned that a smaller or larger refund was not a good indicator of that, since it is driven by the amount withheld during the year: “That’s why it’s important for them to use a qualified preparer, one who will take the time to explain to them what happened due to tax reform, and how they arrived at the end result.”

“There were two big mistakes with implementing tax reform,” he said. “The first was the rush to get the tax cuts into people’s paychecks, thinking they would notice they got extra money come tax time. The second was the redesign of the 1040. It’s no postcard, it’s a bunch of half pages with schedules.”

Harris cited the situation of a couple who not only made $30,000 more in 2018 than in 2017, their taxes went down $500. “They made more money than the year before, paid less in tax due to tax reform, but were unhappy because they owed $4,500 more than they owed the year before because they didn’t adjust their withholding,” he explained. “I asked them, ‘Are you happy your taxes went down or upset because you owe more?’ They should have recognized they were getting $5,000 extra during the year, but they didn’t remember getting the $5,000 in lower taxes during the year.”

The size of refunds are about where they were last year, according to Harris. “But if you owed last year, you probably owe more this year,” he said. “And the SALT cap can impact red states as well as blue states. About a third of my clients in Georgia had more than $10,000 in state and local taxes.”


On the smoother side

“Tax season so far has been running relatively smoothly,” said Vincent O’Brien of Vincent J. O’Brien CPA. “There were delays in getting 1099s, but that’s been the pattern the last few years. They were a bit later this year than usual, and K-1s were definitely late.”

O’Brien, who does consulting for other CPAs in addition to his own practice, cited Section 199A issues as the single biggest concern.

“Early in tax season there was a concern with how Section 179 interacted with Section 199A,” he said. “Some of the software packages did not take Section 179 as a deduction in arriving at qualified business income, and that created a lot of questions. QBI should be reduced by the Section 179 deduction, so we alerted people to look carefully at the K-1s they received from clients. Some K-1s were correct, others weren’t.”

Most clients came in knowing that this year was different, according to O’Brien. “They had heard in the media that some were getting smaller refunds, and we warned them last year, so most were not shocked,” he said.

Section 199A was likewise an issue for Michael Barbera, a partner at Boston-
based CPA firm Edelstein. “We’ve seen more issues regarding Section 199A than anything else,” he said. “Section 163(j) has also raised a number of issues. There are so many different scenarios where it’s not clear how to process the K-1s, and there are misconceptions as to whether a partnership is subject to limitations. If you get a K-1 that is done correctly, there are still individual- or partner-level limitations that can limit interest Even if it’s not subject to 163(j) at the partnership level, you have to provide information and a lot of K-1s are not providing that information.”

“Most of the accountants I deal with told me that tax season was going relatively smoothly,” said Guinevere Moore, a tax litigator at Chicago firm Johnson Moore. “One issue for practitioners is the Bipartisan Budget Act changes that impact partnerships. This is the first year that a partnership has to decide if it is eligible to elect out of the BBA rules, and if it is, whether it wants to elect out. If it doesn’t elect out, it must select a partnership representative, which replaces the tax matters partner under the 1982 TEFRA regime.”

Partnerships must make the election for each year on a timely filed return, plus extensions, for the tax year.

“Many CPAs are being asked to perform the role of partnership representative,” observed CNA’s Rood. “However, most professional liability insurance policies include an exclusion for making management decisions. The role of partnership representative includes the ability to make all decisions regarding the audit of the partnership, so I would advise them to contact their professional liability insurance carrier before agreeing to this. Even if there is coverage, there are many conflicts of interest that exist with the provisions. I’m not sure a CPA wants to walk into that quagmire.”

Those who have prepared taxes for a number of years fondly remember past tax seasons.

“Remember when investment houses had to report by the end of January? Now we’re lucky if we get 1099s by the end of February,” said Susan Ginsberg, a Hoffman Estates, Illinois-based CPA. “This puts careful professional accountants in a bind that we fight to get out of day by day. Doing a good job means slowing down to handle the new law, the new reporting requirements, and clients that are on edge, especially this year.”

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