The Tax Man Cometh ... Home?

David Stewart:   0:01
Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: the taxman cometh from home. With the coronavirus pandemic, many states and employers have encouraged, and sometimes ordered, people to work remotely whenever possible. The IRS is no different. The tax agency has had to physically close many of its offices across the country due to the coronavirus, but IRS employees continue to work -- just from their homes. Here to discuss the pandemic's effect on the IRS and tax practitioners nationwide is Tax Notes senior reporter Paul Jones. Paul, welcome back to the podcast.

Paul Jones:   0:40
Hi, David. Thank you.

David Stewart:   0:42
Who did you talk to about this?

Paul Jones:   0:43
We spoke with E. Martin Davidoff,  partner in charge of national tax controversy at Prager Metis.

David Stewart:   0:49
And what did you talk about?

Paul Jones:   0:50
Well, we spoke about how the coronavirus pandemic is impacting his work, and how it's changed the IRS's activities as well, and what some of the challenges are that those changes have created for tax professionals like him. He also spoke about some of the opportunities the upheaval has created for some taxpayers that tax professionals should consider pursuing with their clients.

David Stewart:   1:10
All right, let's go to that interview.

Paul Jones:   1:13
Hi Marty. How are you doing?

E. Martin Davidoff:   1:14
I'm doing great today, Paul.

Paul Jones:   1:16
Excellent. Well, let's jump right into it. Obviously, the coronavirus pandemic has affected every level of our society, and the tax world is no exception. I'm curious: what are some of the ways that the lockdowns and the filing extensions and other changes have affected your work at your office, both in terms of the number of clients that you're dealing with and the types of work that you're doing? And also what changes you're making to your operations in light of the pandemic?

E. Martin Davidoff:   1:42
Well, I'm finding I'm working at home every day. I have learned a lot about Microsoft Teams, which we use internally to see each other and talk to each other. And one of the nice things is I get to see some of my partners in California, in New York, in Long Island, that usually I would just speak to on the phone, but now I'm getting to see their faces. So that's one small kind of item.

E. Martin Davidoff:   2:01
In terms of the IRS work that we do -- we're a controversy department within Prager Metis -- and basically it's like somebody turned off the spigot. And we saw this with Hurricane Sandy in 2012. The notices stop, so the people stop coming into the office, but it's not quite as bad as we thought. We're finding that we're catching up on our work. We're finding people contacting us. I had somebody contact me today from two years ago, just got some financing and said, "Listen, I want to pay off my IRS. Can I get a penalty abatement? 

E. Martin Davidoff:   2:27
We're getting -- through our reputation -- we're getting a lot of people coming, but basically the work has slowed, so we're trying to fill in, catch up on projects. Staff is a little bit less pressured because the deadlines aren't hard. Nothing's due until July 15 with the IRS, and so we're cleaning up our backlog. We're getting our administrative things set up. We're getting our new case management system installed.  

E. Martin Davidoff:   2:46
And we're finding that most of the revenue officers and appeals officers are still working cases, and we can have conversations with them. And we're finding also, I had the state attorney general's office call me on a New Jersey Tax Court case. So we're finding that the work is there in spite of the fact that the number of notices that are going out are far fewer. And, as I said, the spigot has been closed partially down.

Paul Jones:   3:06
Interesting. One thing that occurs to me is that if there is a slowdown now, you could have an increase in demand later on, given that the deadline's been moved back. Are you anticipating a rush in the near future? Sometime in the summer?

E. Martin Davidoff:   3:20
We're anticipating a rush from the third quarter, July to September, and I think it's going to ramp up to a crescendo. I think still people, once they want to get out, will get out. And they'll start to attending to their stuff in September once some of the IRS notices start getting out. And that may not be a hard and fast timeline. I still think there's a lot unknown about this COVID-19 and our reactions to it, and I think it may linger to the fourth quarter. But I see September, at least, is going to be a very, very busy month. I think when the IRS wakes up and starts sending out notice of intent to levy and lien notices that we're going to still get a lot of business.  

E. Martin Davidoff:   3:54
What's interesting now is they're still sending out the, what is called a CP-504, which looks scary. It's a notice of levy, but it's a notice of levy of your state tax refund. So it's really not as scary as when you read the details, but it is still driving some people to our office.

Paul Jones:   4:09
So that's an interesting look at how your work is being affected by extended deadlines and the like. I want to talk a little bit about the IRS. Obviously, it focuses to a great extent on collections, and it's had to change its collections activities in light of the pandemic. Can you talk a bit about how it has changed its collection actions, and how that has affected you and your work?

E. Martin Davidoff:   4:31
I'd be glad to. I have a whole bunch of stuff to talk about that. The first thing is the commissioner of the Internal Revenue Service is what I call one of us. He was a practitioner until he became commissioner. And he started this People First Initiative, where he basically said,  "Listen, we're going to extend deadlines. We're going to do the right thing." And he came pretty early. It was toward the end of March, even before they passed the CARES Act, and he took this lead.  

E. Martin Davidoff:   4:52
And there's a whole bunch of things that are happening. They've deferred installment agreement payments. If you're in an installment agreement, you can stop paying through July 15. If you're in a direct debit installment agreement, you have to contact your bank. There's no levies, no garnishments, no seizures, no lien filers. It's a good time for us to advise non-filers because they may be able to get in with a slightly more lenient IRS. We're still able to get into agreements with revenue officers. And I think there's going to be relief post-July 15 as the economy digs a hole-- you know, the hole that's being dug is very deep, and I think we're going to have an opportunity even after July 15 to get some deferrals. And I think a kinder and gentler IRS even post-July 15 than they were before this whole COVID-19 started.

Paul Jones:   5:35
Right. And sort of along the same vein, obviously other aspects of the IRS's operations have been changed, including, I assume, audits. How is that affecting things? Is there a similar sort of impact with respect to those changes?

E. Martin Davidoff:   5:48
Well, there are no new audits coming aboard. They're not being started. But the people, the revenue agents, are working at home and we're working cooperatively to finish audits. We're working with appeals officers.

E. Martin Davidoff:   5:57
I will tell you, I just want to circle back to the some of the collections issues I was talking about. The passport revocations were a big deal. People were paying money when they had a certification of the Secretary of State that their passports were going to be revoked. Well, that's not happening anymore. Not that anybody is really traveling. But when we start again traveling, the reversal of those certifications -- right now if I had to do a reversal for somebody who had to travel, that would be very difficult because nobody is answering the phones.  

E. Martin Davidoff:   6:21
They're not sending any new cases to private debt collection agencies, s those calls are going to stop for taxpayers. And you know, they are establishing new installment agreements where they can agree with the taxpayer, and they are still placing clients into currently non-collectible. But these are just revenue officers out in the field because the 800 phone numbers, there's nobody there.  

E. Martin Davidoff:   6:40
And interestingly, the statue of limitations can't get extended by the IRS unilaterally. So as they face statue of limitations, they might get aggressive in some serious, more egregious cases. But some of the mundane cases, the statues expire, the 10-year statue on collections.

Paul Jones:   6:54
Right. You talked about interfacing with people working for the agency. One thing that occurs to me is that obviously a lot of people who would normally be physically present at IRS offices are not. Does that affect your ability to get information or to work with these people in any way? To have them not be at their traditional place of work where maybe they have access to certain resources that they won't if they're telecommuting?

E. Martin Davidoff:   7:17
It's interesting you raise that because I was talking to a revenue officer earlier this week, and she said that once a week she's allowed to go into the office for two hours when nobody else is in there for her to use any of the technology or get any files that she needs to get. She has to make an appointment the week before. So they're dealing with the access.

E. Martin Davidoff:   7:33
So most of the people are paperless.  Most of the revenue officers, appeals officers, and revenue agents, which are people outside the 800 numbers, we're able to deal with them. And they are talking and their workload is down because they're not getting assigned new cases. So those conversations are going well. We even had somebody calling from home on an offer in compromise today. We're trying to work that going forward. They're very careful to say we got until July 15.  

E. Martin Davidoff:   7:54
But basically they're like us, concerned about their lives and situations, and they're being careful and they're working at home. And it's going to be tough for us to get some stuff. We can't even get a power of attorney into the central authorization facility, you know, CAF. We can't get power of attorneys in because they've closed down the fax lines and closed down the people who do that.  

E. Martin Davidoff:   8:11
Now, how does that affect us? Well, part of what we do in our firm is we're a CPA firm, we do tax returns. We usually go online through e-services after we put in our power of attorney to download the account transcripts, or the wage and income transcripts. Well, there's no way to get the power of attorneys in, so we can't do that. One of the workarounds we're trying to do is to go to our clients and say, "Listen, can you sign online?" Some can, some can't. And if we really had a situation where we had to get some, had to get a document, we'd probably go to the taxpayer advocate.

E. Martin Davidoff:   8:37
We had a case the other day in order for somebody to accelerate their Medicare payments for a physician's office -- in order to accelerate them -- he needed a letter 147-C that confirms his ID number and the name of his company. Well, we went to a taxpayer advocate who we had the cell phone number for, called him up, and some of the advocates are working at their regular phone numbers, they're just being forwarded to their cellphones or their homes.  

E. Martin Davidoff:   8:58
And we're finding that to some limited extent, we can get things done, but a lot of stuff we just can't get done. But then again, there's no urgency to get them done because the IRS is not threatening to do anything. Usually it's the threat that the IRS is going to levy, seize that drives people to our doors and drives the urgency of us getting stuff done. Right now, nothing is due until July 15.

Paul Jones:   9:18
One thing -- you might have touched on this, but I wanted to bring it up -- is that the Priority Practitioner Hotline, I believe, is also closed. Is that affecting your work as well? And if so, what, if any, steps have you taken to deal with the challenges that that can present?

E. Martin Davidoff:   9:32
Yes, it certainly is. That's one of the places we would get our account transcripts. We're trying to use online resources as much as possible. We're using other contacts with the IRS like the IRS taxpayer advocate. We're trying to get information from revenue officers and appeals officers. And I would advise that our listeners keep an eye on irs.gov, particularly the notices and rulings as well as the COVID-19 section on the website. They're coming out almost daily with rulings either on changes in the law that affect taxes, like the net operating losses, or upon the complexity of representing people in this much limited world of non-access.

Paul Jones:   10:08
Moving on to a slightly different topic, and obviously you focus on controversy, but the IRS, of course, is now rolling out economic impact payments. We've seen a lot of coverage recently as people are receiving those. Is that having any effect on your work? And are you seeing people who are looking to maybe catch up on their taxes in order to take advantage of that program?

E. Martin Davidoff:   10:29
Well, if you are required to file a tax return for 2018 or 2019 and haven't done it, you're not getting an economic impact plan payment until at least you file one of those two returns. And we're finding this very interesting on multiple levels. So, for example, if I have somebody who filed their 2018 return: let's say I have a single individual who made $75,000 in 2018. But in 2019, they made $110,000. They won't qualify for the economic impact payment based upon 2019. So we're saying, "Listen, hold off on filing your 2019 return until you get your check, and then we'll file the 2019 return."

E. Martin Davidoff:   11:00
In essence, the way the government has worked here in the legislation under code section 6428, they basically said we're going to use the 2019 return unless it's not there. Then we're going to use the 2018. But then in 2020, when you file your 2020 return, if you can get more money, we'll give you the more money. But if you're going to get less, we're not going to take it back. It's basically heads I win, tails you lose from the taxpayer to the government, where the government is basically saying, "That's OK." Because if you got more money for the 2018 or 2019 return and you end up making a lot of money in 2020 because maybe you had a lot of overtime for Amazon -- working for Amazon or Netflix, which are doing very successfully. Then even though you made more money, it might not be entitled under your 2020 income. If you qualified under the 2019, or if you didn't file your 2019, qualified in 2018. The government's not going to take back that check.  

E. Martin Davidoff:   11:46
And this is also a good time for non-filers as you suggested. For me, to get them in and say, "Listen, let's have a strategy about dealing with your non-filing. You now hopefully have time to put together your records." There's a lot of clients that say, "Oh, I never have time. I'm so busy." A lot of clients now have that time because they're not so busy. And so we help them come up with a strategy. Do we use voluntary disclosure? Do we use a soft disclosure? How many years do we go back on the tax returns? And we have that conversation with our clients.

Paul Jones:   12:11
So it's sort of a good time for people to catch up on things, both in terms of tax practitioners and clients.  

E. Martin Davidoff:   12:19
Absolutely.  

Paul Jones:   12:20
Another question. You had mentioned obviously, a lot of guidance is coming out now, including about the CARES Act, and also generally on other topics as well. What are some of the items, maybe that you haven't mentioned, that you think are particularly significant, particularly for practitioners, CPAs, and even clients, that have come out recently?

E. Martin Davidoff:   12:37
I think there's some opportunities here for practitioners to get some work done and help their clients. First of all, with the extension of the 2019 filing to July 15, people who didn't file their 2016 returns, who might have refunds, also now have until July 15. And people should be aware of that.  

E. Martin Davidoff:   12:53
The other thing is section 1031 transactions that might have come to the 180-day deadlines or the 45-day deadlines, those are all now extended to July 15.  

E. Martin Davidoff:   13:01
Furthermore, there are some changes in the law. I'm going to put kind of three together that can generate net operating losses, and you have an opportunity to get a quick refund using forms 1045 or 1139 if you file by July 27. And to know that you have to look at new revenue procedures 2020-22, 2020-23, and 2020-24.  

E. Martin Davidoff:   13:23
And these are looking at the new laws on net operating losses that allow you to carry back five years. It talks about the new qualified improvement property. Let's say you built an Arby's in 2018. You had it depreciate over 39 years. But now, because they fixed with is called the qualified improvement property, or QIP, technical defect. You now can deduct the entire $3 million possibly. And therefore you might want to amend your 2018 return.  

E. Martin Davidoff:   13:47
And that maybe your business that was subject to 163(j), where you can only deduct 30 percent of your interests because you had revenue over $25 million. Now the IRS is giving you a do-over on that previously irrevocable election. So I would suggest that people look at those three things, look at those revenue procedures, and you have an opportunity to get a quick refund. Now, even if you don't make the July 27 date, you'll still be available to eventually get the refund. But you may have to go through something like the administrative adjustment and add it to your 2020 return. But there's some really great opportunities here to amend your 2019 and 2020 returns. If you haven't elected out of your centralized audit regime on your 2018 or 2019 returns, you have until September 30 to do that. And these are all addressed by three rev procs that are really very generous to taxpayers and just shows the direction the IRS is going in order to really be considerate of taxpayers in these troubling times.

Paul Jones:   14:38
Excellent. So it seems like even though we're in the midst of a pandemic and facing potentially some economic problems, there are a lot of opportunities that people can take advantage of in the tax world. If you're willing to look at the glass half full.

E. Martin Davidoff:   14:50
Absolutely. There are many opportunities. And a lot of work to go back, look at your clients and say, "OK, who's going to qualify for these things?" And reach out to clients because the clients aren't going to come to you.

Paul Jones:   14:59
Excellent. Marty, It's been a real pleasure speaking with you. 

E. Martin Davidoff:   15:02
Well, thanks so much, Paul. I really appreciate being invited onto your program and participating with you today.

David Stewart:   15:07
And now, coming attractions. Each week we preview commentary that'll be appearing in the Tax Notes magazines. Joining me now from her home is Content and Acquisitions Manager Faye McCray. Faye, what will you have for us?

Faye McCray:   15:19
Thank you, Dave. In Tax Notes State, Kendall Houghton and Matthew Hedstrom discuss the challenges of the escheatment of tax-deferred retirement assets. Nikki Dobay and Jeff Newgard provide an update on technical issues regarding the Oregon corporate activity tax. In Tax Notes International, Thomas Horst and Alex Curatolo estimate the double-counted pretax profit of U.S. corporations and partnerships. Virginia La Torre Jeker discusses the foundations regimes available in the United Arab Emirates. And on the Opinions page, Carrie Elliot describes how new proposed regs align treatment of high-taxed income. Robert Goulder evaluates the pros and cons of delaying the work of the OECD inclusive framework. And now, for a closer look at what's new and noteworthy in our magazines, here is Tax Notes Executive Editor for Commentary Jasper Smith.  

Jasper Smith:   16:10
Thanks, Faye. I'm here with Tax Notes contributing editor Ben Willis to discuss his article, "Biden’s Tax Plan for COVID-19," which was recently published in our Tax Notes Federal magazine. Ben is joining us by phone from his home in Maryland. How are you Ben?

Ben Willis:   16:24
Hey, Jasper. I'm doing well. How about you?

Jasper Smith:   16:26
I'm doing well. Thank you. So, can you give us a quick overview of your article?  

Ben Willis:   16:29
Sure I can. This is actually a continuation of a series of articles. I recently began writing on likely tax proposals related to COVID-19. I think folks familiar with my work understand that I try to make sure all views are considered. And so with that in mind, some of the topics that permeated throughout the articles were predictability for individuals, particularly in light of just the uncertainty going on right now; permanency on some of the expiring provisions that are coming up; health incentives, health generally; immediate stimulus for businesses that are hurting right now. And so that's really the background leading up. Obviously, when I dove into Biden's tax plan, I was able to focus more specifically on what I thought he would do.

Jasper Smith:   17:16
Right. That makes sense. And amid the coronavirus pandemic, there really hasn't been as much attention paid to the presidential campaign. So what actually led you to write about Biden and his likely tax plan for tackling the pandemic?  

Ben Willis:   17:28
So, I wasn't expecting to write about any of the campaign-related material any time soon. I didn't expect anything would deviate the focus from COVID-19, and I don't think anything is actually in large effect. But at the same time, since I went through this series where I focused on all of the likely candidate provisions. And by candidate, I use that term loosely by describing Democrats and Republicans, since we had no clear frontrunner with respect to the upcoming election. But that all changed just recently. And so now that we have a presumptive nominee for the Democratic Party, it looks like we have a face-off between President Trump and former Vice President Joe Biden in our future.  

Ben Willis:   18:13
And so with that mind I dove in. And I think what made it particularly relevant was the fact that shortly after Joe Biden became vice president, he helped enact the American Recovery and Reinvestment Act to deal with the Great Recession, which a lot of us remember was an extremely difficult time after the subprime mortgage crisis. And so President Obama, who was relatively new in Congress at that time, really looked to Joe Biden to kind of spearhead his efforts to get folks to support that legislation. And it wasn't an easy attempt. He spent quite a bit of time working with senators and trying to make them appreciate the economic crisis that they were dealing with. And ultimately, he was able to convince enough Republicans to join the efforts to help bring back the economy notwithstanding, it was under the Obama administration.  

Ben Willis:   19:06
And so, with that in mind, I dove into what I expected Joe's proposals to be with respect to the upcoming legislation. Now, he's already made a number of his proposals clear over the past year. And so, I was able to borrow a lot from his prior statements and material, as well as proposals that he and President Obama made during that administration. And so, with that in mind, I think I was able to put together a piece that really gave a good overview of the direction that it looks like that he'll likely head. And a lot of that really provides assistance for those who could be hit by COVID-19 the hardest. And so I think it came together nicely.  

Jasper Smith:   19:50
Thanks, Ben. We certainly appreciate that overview. And can you tell our audience where they can find you online?  

Ben Willis:   19:55
Sure, I can be reached at @WillisWeighsIn on Twitter. And if you're looking to email me, you can reach me at ben.willis@taxanalysts.org.  

Jasper Smith:   20:04
And of course, you can find Ben's article online at www.taxnotes.com. And be sure to subscribe to our YouTube page for more in-depth discussions on what's new and noteworthy in Tax Notes. Our YouTube page is @TaxAnalysts. That's T-A-X-A-N-A-L-Y-S-T-S. Back to you, Dave.  

David Stewart:   20:22
You can read all that and a lot more in the April 27 editions of Tax Notes Federal, State, and International. That's it for this week. You can follow me online @TaxStew, that's S-T-E-W. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.