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April

Breaking down the proposed cryptodollar

By Sean Stein Smith

 

Around the same time a sorely needed economic relief package made its way through Congress into law to try to offset the economic wreckage of COVID-19, a unique proposal came to light a few weeks ago. While it soon faded from the headlines and from most discussions as attention turned to implementing the economic relief bill itself, the potential for a cryptographically secured digital U.S. dollar is still worth discussing.

Much has been written and discussed over the last several years as decentralized cryptocurrencies, stablecoins and smart contracts continue to move closer to mainstream economic debates. Even with all of this conversation, however, the idea of a governmentally managed and issued cryptoasset seems worth digging into further. Let’s take a look at what a potential cryptodollar might look like, some of the opportunities it might create, and the implementation challenges that need to be addressed.

 

But first, not so different

With all of the buzz this announcement created, it’s easy to imagine that the idea of a virtual currency is something new, but that’s simply not the case. Moving to a cashless society is something that has been underway both in the United States and abroad for decades, with some nations actively pursuing a goal to have all personal and commercial transactions become digital in nature. Venmo, Zelle and numerous other cash transaction apps have already gotten millions of Americans used to conducting transactions in a digital manner and are reliant on some level of security. Although the idea of a cryptodollar might have generated a lot of sizzle, it is not as dramatic a departure as it might appear. That said, a cryptodollar would be significantly different from existing fiat currencies, cryptocurrencies and stablecoin offerings.

 

Nevertheless, the idea of a government-issued cryptodollar would be radical, given the roots of bitcoin, the most known and discussed cryptocurrency. As outlined in the original bitcoin whitepaper, and cited by proponents and critics alike, a major (some would say primary) driver of crypto development was to create a legitimate alternative to fiat — government controlled — currencies. After a dramatic run-up in 2017 led to a crypto price crash, the trend has been toward increased centralization as traditional institutions became involved in the blockchain space. The pros and cons of this shift have been debated endlessly, but the fact remains that this shift has occurred and continues to move forward. Punctuated by the somewhat surprising launch and presentation of the Libra Association in June of 2019, the idea of a centrally developed, issued and controlled cryptoasset was — suddenly — not as wild or unrealistic as it previously had been. The pushback that this announcement generated nearly overnight on a global basis proved one thing without a doubt: governments were taking this idea seriously.

 

Benefits and opportunities

From an accountant or practitioner perspective, there are two potential primary benefits associated with a potential cryptodollar project, both of which address two large stumbling blocks to broader adoption. Kicking it off would be the potential resolution of accounting and reporting issues that can complicate providing advice to clients. Since this specific cryptoasset is a cryptodollar, and would be backed by the full faith and credit of the U.S. government, it would be simple to say these cryptodollars should be accounted for as cash equivalents. While this assumes any technical issues (more on those next) will be resolved, this would address some of the questions troubling practitioners. Building on this first resolution, the next logical item that would potentially be addressed is the current debate regarding tax treatment of cryptocurrency.

Currently cryptoassets — including traditional cryptocurrencies like bitcoin and stablecoins — generate a taxable event and tax liability when they are used or are received for goods and services. Since this proposed cryptodollar would be equivalent to the U.S. dollar and treated as such from a reporting perspective, it also makes sense that it would be treated as such for tax purposes. In other words, the accounting and tax issues, both of which have been substantial obstacles to broader adoption, could potentially be addressed via the introduction of a cryptodollar.

 

Potential stumbling blocks

Despite these benefits of a proposed cryptodollar, several significant issues could derail this otherwise interesting project. Setting aside the technical and implementation issues, and assuming this project will develop and roll out according to plan, let’s take a look at a few of the bigger-picture considerations that need to be resolved prior to broader adoption. (This is not meant to be an all-inclusive listing, but a starting point for further conversation and debate.)

 

1. Privacy: If a cryptodollar is issued and controlled by the Federal Reserve, what are the implications for privacy? Will the Fed then have access to every individual American bank account information, and if so, what level of control will it be able to exercise? Also, if every transaction is cleared through a Fed clearinghouse, does that subject all transactions to review and possible approval? If so, who decides what is an appropriate use of the cryptodollar?

 

2. The unbanked population: It’s no secret that issues of inequality in the U.S. and globally have moved to the front burner. Simply assuming that every American would have access to a mobile device to transact with cryptodollars would be naïve. The recent and sudden shift to working from home for large parts of the population has highlighted the bifurcation that exists between individuals with access to tools to exist and succeed in a digital environment and those who do not. How would this tool be rolled out to individuals who are unbanked or underbanked?

 

3. Connection to physical dollars: It would be unrealistic to expect any cryptodollar project to immediately succeed and seamlessly replace all physical dollars. If this project is implemented in stages, what happens to the value of physical U.S. currency? As the percentage of crypto to traditional dollars tilts in favor of cryptodollars, will this impact the comparative value of physical dollars? This might seem like a bizarre scenario, but how much is a VHS collection worth today compared to access to video-streaming services? Technological disruption always produces winners and losers, and the rollout of various governmentally supported cryptoassets would be no different.

 

It’s not clear the cryptodollar concept will proceed at this point, but the issue arose during the debate around the historic economic relief plan, indicating such a plan is being taken more seriously. Accounting practitioners and other financial professionals will need to keep an eye on this and other crypto developments, as governmental entities continue to become larger players in the space. Changes as dramatic as this will create both opportunities and challenges, but that is something the profession is used to contending with successfully.

 

 

 

Inside the tax implications of crowdfunding

By Roger Russell

 

Despite the myriad of economic assistance available through the recently passed legislative initiatives, there might still be the need for additional funding, according to Barbara Weltman, author of J.K. Lasser’s “Small Business Taxes 2020.” “A number of small businesses are turning to crowdfunding for support in order to stay afloat,” she said.

 

Crowdfunding — the process of raising money from a large number of people through the internet for projects, ventures, or donations — has grown in popularity in recent years.

“Over the last decade, crowdsourced online fundraising has become increasingly widespread,” said Joyce Beebe, a fellow at Rice University’s Center for Public Finance. “The proliferation of online digital platforms — including GoFundMe, Indiegogo, Kickstarter and Fundrise — connect like-minded individuals to make financial contributions toward various projects.”

 

However, despite the popularity of crowdfunding activities, tax-related considerations are often overlooked because of their novelty, she indicated.

 

Three types of crowdfunding include donation-based crowdfunding, reward-based crowdfunding, and equity-based crowdfunding, according to Beebe.

 

“Small businesses looking for help would likely [use] donation-based or reward-based crowdfunding,” she said. “The difficulty is how to stand out when thousands of others are making similar requests.”

 

The tax implications of crowdfunding on both donors and recipients are still evolving, she observed. “For donors, only donations to qualified charitable organizations are tax-deductible,” she said. “Therefore, no matter how charitable the intent or outcome, donors who make payment on GoFundMe cannot claim these funds as charitable contribution deductions on their tax returns. In addition, donors are subject to the annual $15,000 gift tax exemption limit, although typical donations typically are in much smaller amounts — from $20 to a few hundred dollars.”

“Although there are different opinions as to whether the platform needs to issue Forms 1099-K, it’s generally agreed that the funds are nontaxable gifts to the recipients, and they do not have to report anything on their returns,” Beebe said. “To avoid confusion, fund recipients should keep good records to demonstrate to the IRS the nature and source of the funds,” she said.

 

Unlike donation-based crowdfunding, backers of reward-based crowdfunding receive goods or services in return for their payments, according to Beebe.

 

“Reward-based crowdfunding is gaining popularity among small entrepreneurs,” she said. “It allows them to provide rewards such as simple thank-you notes, T-shirts, concert tickets or a promise of the future delivery of a product. An early version of a video game might be offered at a 50 percent discount. The proceeds of reward-based crowdfunding are considered taxable business income instead of gifts.”

 

“Let the buyer beware” is good advice for would-be contributors, according to Beebe. “If it’s donation-based, you’re not requesting anything in return — there are no strings attached,” she said. “But recent federal and state investigations have revealed several instances of fraud in reward-based crowdfunding.” The Federal Trade Commission recently charged an individual with operating a deceptive crowdfunding scheme — for instance: The used both Indiegogo and Kickstarter for the development of a high-tech backpack, but failed to deliver it after raising more than $800,000 and using most of the money for personal expenses.

 

In equity-based crowdfunding, the backers receive an ownership stake in an enterprise in return for their contribution. The Jumpstart Our Business Startups, or JOBS Act, of 2012 created an exemption that allowed an exemption to the normal requirement to register with the SEC. “This allowed non-accredited investors, typically with lower income and wealth levels, to participate," according to Beebe.

 

“Such investments became popular after the SEC drafted final rules which were effective in May 2016,” Beebe said. “In 2013, a Silicon Valley start-up accelerator created the Simple Agreement for Future Equity — SAFE — which is an agreement between an investor and a start-up for future equity if certain triggering events occur.”

 

 

 

IRS not processing paper tax returns due to coronavirus

By Michael Cohn

 

The Internal Revenue Service has stopped processing paper tax returns, with much of its staff now working remotely because of the novel coronavirus pandemic, and is encouraging taxpayers to file their taxes electronically during the three-month extension period for this year’s tax season.

 

The IRS said Friday that to protect the public and its own employees, and in compliance with orders of local health authorities across the U.S., some IRS services such as live assistance on telephones, processing paper tax returns and responding to correspondence are extremely limited or suspended until further notice. All of the IRS’s in-person Taxpayer Assistance Centers are temporarily closed along with many volunteer tax preparation sites until further notice. However, that won’t affect the IRS's ability to deliver “economic impact payments,” the stimulus payments of at least $1,2000 that it began directly depositing Saturday in some taxpayers’ bank accounts.

 

While the tax-filing deadline has been extended from tomorrow’s original due date until July 15, the IRS noted that it’s continuing to process electronic tax returns, issue direct deposit refunds, and accept electronic payments. As of April 3, the IRS has received more than 97.4 million tax returns and issued over $213 billion in tax refunds.

 

The number of Americans ages 65 and over is projected to nearly double by 2060. And most would prefer to age in place and hiresenior caregivers if needed.

 

However, paper tax returns are a problem this tax season with most of the IRS staff out of the office. The IRS wants all taxpayers to file electronically through their tax preparer, tax software provider or IRS Free File if possible. This year, more percent than 90 of taxpayers have filed electronically.

 

The IRS said it’s not currently able to process individual paper tax returns. “If you already have filed via paper but it has not yet been processed, do not file a second tax return or write to the IRS to inquire about the status of your return or your economic impact payment,” said the IRS. “Paper returns will be processed once processing centers are able to reopen.”

Similarly, the IRS's National Distribution Center is closed until further notice. The IRS said it’s unable to take any orders for forms or publications to be mailed during this time. Most forms and publications can be downloaded electronically at IRS.gov/forms.

 

 

 

 

SBA disaster loan assistance application: An update

By Melissa Diaz

 

If you are a small business owner in the U.S., it is probably a safe bet that you and/or your customers have been impacted in some way by the COVID-19 pandemic. High Rock Accounting is no different and applied for an SBA Economic Injury Disaster Loan (EIDL) at the first opportunity available as a result (see our article detailing this process here) . Unfortunately, those of us that were early movers now have to re-apply using the new, “streamlined” EIDL application platform provided by the SBA.

 

 

More CFOs expect layoffs due to coronavirus

By Michael Cohn

 

More than one-fourth of CFOs anticipate layoffs at their organizations, a significant increase from two weeks ago, according to a new survey.

 

The survey, from PricewaterhouseCoopers, found that 26 percent of the CFOs polled from 313 U.S. companies anticipate layoffs, compared to 16 percent two weeks ago during a similar survey by PwC of CFOs in the U.S. and Mexico. There is some variation by industry sector, however, with only 13 percent of financial services CFOs expecting layoffs, while more CFOs in the industrial products (36 percent) and consumer markets (30 percent) expect layoffs.

 

The third release of PwC’s "COVID-19 CFO Pulse Survey" found the financial impacts of COVID-19 now rank as the top concern of CFOs, with 75 percent of the CFOs polled citing the pandemic’s effects on operations and liquidity. In addition, 82 percent of CFOs indicated they are now focused on reining in costs. That’s up markedly from two weeks ago, as they continue to deal with the economic impact of the COVID-19 pandemic. Two thirds (67 percent) of the survey respondents are considering deferring or canceling planned investments. Most companies are looking to contain costs by halting investments in facilities and capital expenditures, IT, workforce and other areas. An overwhelming majority (81 percent) of the survey respondents expect the coronavirus to decrease their company’s revenue and/or profits this year. Fewer financial leaders (61 percent) believe they will be able to return to “business as usual” within three months if COVID-19 were to end immediately, a considerable drop from two weeks ago.

 

Paying household help “under the table” with cash seems like a good idea—but doing so can deny employees social services benefits and protections.

 

“We’re clearly in a recession at this point, and CFOs are trying to figure out how long the recession is,” said Tim Ryan, U.S. chair and senior partner at PwC, during a conference call with reporters Monday. “They’re struggling with how to provide guidance when you simply don’t know or have the answer. It’s hard to find a company that is not focused on managing costs, relooking at investments, focusing on liquidity, preserving capital, and accessing where appropriate the CARES Act. That’s what we’re seeing almost universally across the client base. We’re also seeing a lot of discussion around what and how to come back to work. Many companies are using their own operations in China and South Korea as a model, and they’re also looking into other data points to inform them as to how to come back to work. Safety and managing the anxiety of their suppliers and employers is on their minds very much."

 

Industries are likely to undergo profound shifts as a result of the pandemic.

 

"Another theme we’re seeing is that some industries will see permanent shifts as we come out of the COVID-19 crisis, whenever that is," said Ryan. "The reality is that many industries that were already under pressure could change their business models, and we’re seeing the COVID-19 crisis accelerate that. Industries such as retail, banking, insurance, manufacturing, education, and even our industry, professional services, were already seeing changes afoot, and the COVID-19 crisis is accelerating many of those changes. The concept of coming back to the way things were is something we’re seeing a growing realization that things will likely in certain industries,

 

 

IRS provides info on claiming quick refunds of NOLs amid coronavirus

By Michael Cohn

 

The Internal Revenue Service posted a set of questions and answers Monday to help companies claim net operating losses and tax credits for prior years so they can get faster tax refunds in the midst of the novel coronavirus pandemic.

 

The FAQ page describes how companies can fax Forms 1139 and 1045 to the IRS to receive the money faster.

 

Last week, the IRS issued some guidance about the tax relief provided under the CARES Act for taxpayers with net operating losses to help them deal with the COVID-19 pandemic. The IRS also recently issued tax relief for partnerships filing amended returns.

 

Revenue Procedure 2020-24 provides guidance to taxpayers with net operating losses that are carried back under the CARES Act by providing procedures for waiving the carryback period in the case of a net operating loss arising in a taxable year beginning after Dec. 31, 2017, and before Jan. 1, 2021, disregarding certain amounts of foreign income subject to transition tax that would normally have been included as income during the five-year carryback period, and waiving a carryback period, reducing a carryback period, or revoking an election to waive a carryback period for a taxable year that began before Jan. 1, 2018, and ended after Dec. 31, 2017.

 

In Notice 2020-26, the IRS gave a six-month extension of time to file Form 1045 or Form 1139, as applicable, with respect to the carryback of a net operating loss that arose in any taxable year that began during calendar year 2018 and that ended on or before June 30, 2019. Individuals, trusts and estates would file Form 1045, and corporations would file Form 1139.

 

Last week, the IRS also issued Revenue Procedure 2020-23, enabling eligible partnerships to file amended partnership returns using a Form 1065, U.S. Return of Partnership Income, by checking the “Amended Return” box and issuing amended Schedules K-1, Partner’s Share of Income, Deductions, Credits, to each of its partners. Partnerships filing these amended returns should write “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended return.

 

In the FAQ page that it posted Monday, the IRS described how to fax Forms 1139 and 1045 to claim quick refunds of the credit for prior year minimum tax liability of corporations and net operating loss (NOL) deductions. Until further notice, the IRS is implementing temporary procedures for digital transmission of Form 1139 and Form 1045. Starting April 17, 2020, and until further notice, the IRS said it will accept eligible refund claims Form 1139 submitted by fax to (844) 249-6236 and eligible refund claims Form 1045 submitted by fax to (844) 249-6237. Before that date, the fax numbers won’t be operational. The IRS is encouraging taxpayers to wait until this procedure is available instead of mailing in their Forms 1139 and 1045 since mail processing is being affected by the coronavirus emergency. A maximum of 100 pages can be initially faxed to either of the fax numbers. If more documentation needs to be attached or seems necessary, taxpayers will be notified during the processing of Form 1139 or 1045.

 

The fax numbers are just meant to be temporary and not permanent ways to send the tax forms. The IRS said that accepting faxed versions of these forms that are normally delivered through the U.S. Postal Service or by a private delivery service is meant as a short-term measure to assist taxpayers in receiving refunds provided under the CARES Act as quickly as possible.

 

The IRS doesn’t plan to establish a similar fax procedure for Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. Form 4466 needs to be filed in accordance with the current form instructions. If a Form 4466 is faxed to the fax numbers above,

 

 

IRS struggling during extended tax season with coronavirus

By Michael Cohn

 

The novel coronavirus pandemic has forced the Internal Revenue Service to dramatically scale back operations late in tax-filing season, according to a new report.

 

The report, released Monday by the Treasury Inspector General for Tax Administration, noted that unlike any other tax-filing season, the IRS needed to take unprecedented and drastic actions to address COVID-19 to protect the health and safety of its employees and taxpayers. That includes closing tax processing centers, taxpayer assistance centers and other IRS offices across the country.

 

Starting Monday, March 30, the IRS directed all employees who aren’t currently teleworking but whose work is portable or can be adapted to work off-site to work from home (or an alternate location) including employees who are not currently on a telework agreement.

 

In addition, the IRS introduced its new “People First Initiative” to help taxpayers facing the challenges of coronavirus. The initiative includes a series of steps to help taxpayers by offering relief on different issues ranging from easing payment guidelines to postponing compliance actions. Information on the various actions the IRS is taking and the relief being provided can be found on the IRS website at www.IRS.gov/coronavirus.

 

The actions taken by the IRS in response to the COVID-19 pandemic will affect its ability to provide timely customer service and tax return processing, TIGTA’s interim filing season report noted. As of Feb. 28, 2020, the IRS received approximately 59.3 million tax returns (with 95.7 percent electronically filed) and issued more than 45.5 million refunds totaling nearly $139.6 billion. During calendar year 2020, the IRS expects to receive approximately 155.1 million individual income tax returns (15.3 million filed via paper and 139.8 million electronically filed). Participation in the IRS Free File program has increased significantly this filing season. As of Feb. 28, 2020, more than 1.5 million Free File returns were received compared to the more than 1.3 million Free File returns received last year as of March 1, 2019.

 

Tax season has now been extended until July 15, 2020 in response to the coronavirus. TIGTA plans to monitor and evaluate the IRS’s response and implementation of the actions taken and issue another interim report to provide real-time information on the 2020 filing season, including the challenges the IRS faces to implement the delay in tax return filing and payments to July 15, 2020, along with the likely backlogs.

 

 

Virus payments from IRS may take months, not weeks, to hit bank accounts

By Laura Davison

 

Treasury Secretary Steven Mnuchin says he wants direct payments to households to go out within three weeks of Congress passing a stimulus law, yet former IRS officials say those payments could take months to reach households.

 

Lawmakers on Capitol Hill are formulating legislation that will more than likely include some form of stimulus payments to American households. Congressional leaders are trying to figure out how to target those payments and quickly distribute them to taxpayers.

 

Even the simplest plan could take the Internal Revenue Service a month or two to enact because there isn’t a centralized, up-to-date list of every household, number of children, income and address or direct deposit bank information, the former officials said. The most recent times the IRS sent stimulus checks to large swaths of households — in 2008 and 2009 — it took more than two months to get the money in the mail.

 

Some taxpayers, such as Social Security recipients and those who get benefits from the Department of Veterans Affairs, will be easy for the IRS to send money to, because the federal government already sends funds to those individuals regularly.

 

“For the vast majority of individuals, the IRS has to figure out how to put households together and then figure out a way to get money to them,” said Mark Mazur, a former IRS and Treasury official. “The idea that IRS has this all-knowing view of what your family looks like is just not true.”

 

IRS officials didn’t respond to a request for comment on how long the agency projects it would take to issue the payments.

 

IRS data

Mnuchin has touted a plan that would send $1,000 to every adult and $500 to every child. Senate Republicans released a proposal last Thursday that would give $1,200 to many adults and $500 to children and would phase out completely for individuals who make at least $99,000.

 

The IRS has data on taxpayers’ addresses and bank accounts for those who received a refund via direct deposit, but it might not be current or accurate, particularly for those who haven’t yet filed their taxes this year. The Senate plan would rely on income data for 2018, so some information is bound to be out of date.

 

The birth of children, divorces and marriages could also affect how big the check should be, meaning that many people could receive more or less that what they’re supposed to get.

 

“You have to accept there is going to be some percentage of errors,” said Jamie Wickett, a partner at the law firm Hogan Lovells who was involved with a commission to restructure the IRS. In addition, “there is always some fraud. You want to do this as quickly and simply as possible.”

 

Senate Republicans began negotiations last Friday on their proposal with Democrats. It would then have to pass the Democratic-controlled House. The complexity of the legislation and how long it takes Congress to pass it will also greatly affect how quickly the IRS can respond.

 

Rebates in 2008

There will likely be some recourse for taxpayers who get shortchanged or don’t get a check at all, but they’ll probably have to wait for it. In the 2008 rebate checks, taxpayers who believed they didn’t receive all they were due could claim the additional amount on their tax return. That would mean taxpayers could get the money, but they’d need to wait until the 2021 tax filing season.

 

Administering a major stimulus program could come during the IRS’s busy annual tax filing season; the IRS has extended the deadline to July 15.

 

The agency has already begun paring back some on-site staff and may have to curb employee levels more if workers are getting sick from the fast-spreading Covid-19.

 

“I am concerned about the stress on the workforce,” said Mark Everson, IRS commissioner from 2003 to 2007. “You have a lot of employees who are older and retirement-eligible. They may have aging parents themselves at home.”

 

The 2008 stimulus checks, which also were sent during the tax filing season, created major complications for the IRS, according to a report from the Government Accountability Office.

 

Calls to the IRS more than doubled as many taxpayers had questions about the amount of their stimulus payment or its timing. The IRS had to shift staff away from collection activities to answer the phones. In total, it cost the IRS about $960 million to administer the stimulus, according to the GAO.

 

“It’s a heavy lift for the service. It’s a very compressed time frame that requires a lot of assumptions on their part,” said Everson, now a vice chairman at Alliantgroup. “It’s important to get this right. It’s got to launch successfully even if it launches a little bit late.”

 

 

IRS lightens taxpayers' compliance and enforcement burden to help with COVID-19

By Jeff Stimpson

 

The Internal Revenue Service is taking a “sweeping series of steps” to assist taxpayers on issues ranging from payment guidelines to compliance actions during the coronavirus outbreak.

 

The changes — part of a new "People First Initiative" — include postponing certain payments related to installment agreements and offers in compromise, and limiting certain enforcement. The agency expects the measures to kick in by April 1 and run initially through July 15.

 

Highlights include:

  • Taxpayers have until July 15 to verify qualification for the Earned Income Tax Credit or to verify their income.
  • Existing installment agreement payments due between April 1 and July 15 are suspended. Taxpayers who are unable to comply with the terms of an installment payment agreement may suspend payments during this period. The IRS will not default any installment agreements during this period, though interest will continue to accrue on any unpaid balances.
  • Taxpayers also have until July 15 to provide requested additional information to support a pending offer in compromise. The IRS will not close any pending OIC request before July 15 without the taxpayer’s consent. Taxpayers can suspend all payments on accepted OICs until July 15, though again by law interest will continue to accrue on unpaid balances.
  • The IRS will not default an OIC for taxpayers who are delinquent in filing their return for 2018. Taxpayers should file any delinquent 2018 return on or before July 15.
  • Liens and levies (including any seizures of a personal residence) initiated by field revenue officers will be suspended during this period. Field revenue officers will continue to pursue high-income non-filers and perform other similar activities. New automatic, systemic liens and levies will also be suspended during this period.
  • Appeals employees will continue to work their cases. Conferences may be held over the telephone or by videoconference.
  • The IRS will suspend new certifications to the Department of State for taxpayers who are “seriously delinquent” during this period.

New delinquent accounts will also not be forwarded by the IRS to private collection agencies to work during this period, and the agency will generally not start new field office and correspondence examinations. The IRS will continue to work refund claims where possible without in-person contact and may start new examinations where deemed necessary.

 

In-person meetings regarding current field, office and correspondence examinations will be suspended. Examiners will continue to work remotely where possible and try to accommodate changes in taxpayer availability during the crisis.

 

The IRS will continue to take steps where necessary to protect all applicable statutes of limitations. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue actions until at least July 15.

 

 

 

The coronavirus pandemic requires bold firm leadership

By Amy Vetter

 

If sports movies are to be believed, the only things you need to lead a team during critical moments are a moving script and a good speaking voice. The big-game speech is a trope that’s been repeated countless times over the years. You know the drill: Before or during a big game, a key figure — usually a head coach, sometimes a star player — gives a rousing lecture to their team. Inspired by these words, the team emerges from the locker room and marches toward victory.

 

Sadly, leading in the real world is a little more complicated. While you can learn a lot about leadership from sports figures, you should probably rely on more than oratory tactics to rouse your team during these unprecedented times in the profession. Real-life leaders need to be proactive, engaged, and positive when tensions run high during this extended busy season.

 

One of the pillar qualities of great leadership is adapting to the situation. Every workplace has different variables, from the personalities on a team to the health of a business. In accounting, one of the biggest environmental factors in the workplace comes in the form of seasonality. There are no getting around tax deadlines and the way they warp the accounting calendar. No matter how far you plan ahead, you will have to deal with the added stress and excess work that tax season entails. How you approach this situation as a leader goes a long way toward determining team success and mental well-being.

 

With that in mind, here are some tips to navigate your team through one of the most tumultuous tax seasons it has ever seen.

 

 

 

COVID-19: What's next for stocks?

Fiscal and monetary policy have provided an overwhelming response—what's next?

FIDELITY VIEWPOINTS

 

Key takeaways

  • First quarter earnings season begins in about a week, and it is likely to be a rough one. The Q1 earnings growth estimate for the S&P 500 Index is now −6% (down from +1% in February).
  • The dollar and credit spreads came down last week. Inflation expectations may be on the upswing as the Fed works to provide liquidity to the economy.
  • Now that the relief rally has happened in stocks, sellers may come back, putting downward pressure on risk assets again.

 

Extreme times call for extreme measures, as evidenced by the sudden shocking blow to the global economy and the equally shocking (in a good way) US fiscal/monetary policy response. The coordinated fiscal/monetary response in the US is on the order of 20% of GDP and likely to rise. These are war-time numbers, which makes sense since we are at war with an invisible enemy.

 

There may well be much more that needs to be done in terms of fiscal policy, but last week shows us that Washington is ready, willing, and able—as is the Fed. After last week the punch-counterpunch dynamic is no longer one-sided. Two weeks ago, we knew that the storm was coming to the US (based on the curves in Italy and Spain), but we didn't yet know what the policy response would be. Now we know. This was 1 of the 2 things the market was looking for. With the policy response in place, the second is to get a peak in the growth rate of COVID-19 cases. We are not there yet, but hopefully we are getting closer after 2-plus weeks of hard-core social distancing. Let's hope it works.

 

We're all isolating together

 

The Q1 earnings growth estimate for the S&P 500 Index (SPX) is now −6% (down from +1% in February), Q2 is −10% (down from +3%), Q3 is −1% (down from +8%), and Q4 is +6% (down from +12%). The 2020 estimate has fallen from +8% to now −2%, while the 2021 estimate is up from +11% to +14%. First quarter earnings season begins in about a week, and it is likely to be a rough one.

 

The dollar, credit spreads came down last week plus other improvements

 

It was certainly a relief last week to see the dollar come down along with credit spreads (to find out why, read ViewpointsMarket bottom: Getting closer?), and to see the TIPS break-evens (a measure of inflation expectations) and cross currency basis swapsOpens in a new window rise. Hopefully these improvements will stick in the coming weeks as the Fed continues to back-stop the entire financial system. Don't fight the Fed, as they say. The Fed has an infinite ability to take the other side of a fire sale.

 

Next steps for stocks

 

The S&P 500 has now rallied about 20% from its intraday low of 2,192 last Monday, March 23. That's exactly in line with typical rallies after a momentum "crash" low. Part of that rally was likely the result of the aggressive policy response, and part of it was likely due to month-end rebalances and short-covering.

 

Now that the relief rally has happened, my guess is that starting this week the sellers will come back, putting downward pressure on risk assets again. It's a predictable playbook. Whether they will succeed will be a major test for this market.

 

If this is a mature bear market reaching exhaustion, then renewed selling pressure may only cause a shallow retest (maybe to 2,300–2,400) as price and breadth diverge from sentiment. But if it's closer to another 2008, this 20% reprieve will be only the first of many on the way to much lower prices.

 

I don't have the answer of course, but between the Fed having unlimited firepower to fight the sellers, and the possibility of COVID-19 peaking in the coming 2 weeks, I am going to carefully track the market's internals for signs of a bottom, if one isn't already in place.

 

But so many questions remain, with perhaps the biggest one being what the timing and shape of the recovery will look like. Will some businesses even be able to reopen if the lockdown drags on too long?

 

When the dust settles there will be many strategic questions to be addressed, including what the investing landscape will look like if fewer companies buy back shares, if deglobalization accelerates, and if full-blown Modern Monetary Theory* is the new normal. Another question is whether we are still in a secular bull market. All important issues that we will need to address once we get to the other side of this.

 

 

Trump, Pelosi put 2017 tax law on table in next coronavirus aid round

By Laura Davison

 

Some of the most contested pieces of the 2017 tax overhaul are being revisited as the White House and Congress begin to discuss another round of economic stimulus, including restoring the break for entertaining business clients and lifting the cap on state and local deductions.

 

House Speaker Nancy Pelosi has said the next coronavirus response bill should suspend the $10,000 cap on deductions for state and local taxes. President Donald Trump wants to restore a tax break for corporate client outings, dinners, sporting games, concerts and cruises, which were limited under the tax overhaul.

 

“Congress must pass the old, and very strongly proven, deductibility by businesses on restaurants and entertainment,” Trump said in a tweet on Wednesday. “This will bring restaurants, and everything related, back - and stronger than ever. Move quickly, they will all be saved.”


Changes will not be easy.

The deduction cap for state and local taxes was a large cost-saving measure in the $1.5 trillion tax-cut plan enacted in 2017, and reversing that would benefit people largely in states run by Democrats. Republicans have already called the idea a “non-starter” and accuse Democrats of using the virus crisis to repeal the most politically contested portion of the tax law.

 

Restoring the deduction for corporate entertainment costs could benefit Trump’s own companies and wouldn’t help venues that are shut down for a prolonged period of time. The 2017 tax law eliminated write-offs for entertainment expenses while leaving intact a 50 percent deduction for client meals. The president has said he wants to make that tax break more generous.

 

“I think it will open up the restaurant business,” he remarked at a White House briefing on Wednesday evening.

Veena Murthy, a principal at accounting firm Crowe LLP, said Congress would have to roll back decades of tax-code adjustments to make meals and entertainment costs fully deductible. “And I don’t think that’s going to happen,” she said.

 

SALT deduction

The 2017 law’s limit on deductions for state and local taxes largely affects residents of high-tax states, such as New York, California and New Jersey, which tend to have statehouses and congressional delegations dominated by Democrats.

 

“I’m not going to allow this to be an opportunity for the Democrats to achieve unrelated policy items they wouldn’t otherwise be able to pass,” Senate Majority Leader Mitch McConnell said in an interview with Hugh Hewitt on Tuesday.

 

Discussion of a new round of economic stimulus is in the early stages, and Pelosi said Wednesday the House might take up a bill soon after its scheduled return to Washington April 20.

 

The SALT limit and other cost-saving measures were necessary to keep the massive 2017 corporate and individual income tax cut below a $1.5 trillion price cap — a condition of the budgetary process Republicans used to pass it without Democratic votes.

 

“Republicans used budget gimmicks to keep the costs down,” said Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. “They took deductions that would have been within the 10-year budget window and pushed them outside of the window.”

 

This time, with members of both parties seeking to encourage companies to keep workers on the job as coronavirus containment shuts down much of the economy, neither party is particularly concerned about running up a large tab.

 

For the most recent round of fiscal stimulus that Trump signed into law last week, the White House initially floated a rescue package of about $850 billion. As the House, Senate and White House worked on the details — each winning expensive priorities such as loans to struggling companies, expanded unemployment insurance and cash payments to households — the price tag swelled to $2.2 trillion.

 

Tax law fixes

Republicans got to roll back some of the tax increases they had to include in the 2017 tax law to limit its total cost. The new law loosens limits on interest write-offs and lets companies use losses incurred this year to claim a refund for taxes paid in past years.

 

Congress also fixed a 2017 mistake that had increased taxes — instead of providing a juicy tax break — for restaurants and retailers renovating their stores. For three years, Democrats resisted making that change, but they relented as part of the virus stimulus negotiations.

 

“At first glance I was like, ‘Really? Wow, way to go lobbyists,’” said Gordon Gray, director of fiscal policy at the American Action Forum, a right-leaning policy institute. “And then I sat down to think about it. We’ve closed a lot of businesses so some of these make sense.”

 

These changes were already on many lawmakers’ wish lists. But Marc Gerson, a former tax counsel to the House Ways and Means Committee, said the current need to get money to companies quickly is a completely different calculus from 2017, when Congress raised taxes in some areas to pay for the overall cuts. Gerson is now a member at the law firm Miller & Chevalier.

 

Some proposed changes to the 2017 tax law didn’t make it into the final bill enacted last week. Democrats blocked two provisions Republicans had suggested — letting corporations quickly get refunds for overpayments of repatriation taxes, and fixing a technical error that would clarify how stock is attributed to foreign subsidiaries.

 

“There is always a pendulum swing back to some degree with major legislation,” said Rohit Kumar, a former McConnell aide now at PricewaterhouseCoopers LLP’s Washington National Tax Services. “Clearly some elements here fit that mold.”

 

 

Top tips for working from home

By Jennifer Lee Wilson

 

COVID-19 has created an unusual situation where many people are suddenly working from home. This means that many professionals who have spent their career working in a physical office away from home are suddenly juggling an entirely new situation, and for some, that situation includes their spouse, significant other, children and/or others sharing their workspace.

 

To help those new to remote work adjust successfully, we enlisted the help of four millennial leaders, plus our millennial co-author, all with ample experience in working remotely, and asked each of them: “What are your top tips for those new to working remotely or working from home?”

 

After the coronavirus crisis improves, many professionals (and firms) who originally objected to remote work will have a much more favorable perspective and realize the many benefits it provides!

 

Create a favorable work environment

“A lot about working remotely is mental. Having a dedicated physical space conducive to an effective work environment is one of those mental factors. Finding a space that’s separate from the rest of the activities you do at home, whether it be a room or just designated space, will help convey to you — and the rest of your family — that while you’re in that space, you’re at work. And the design of that space is just as important. Make sure your setup is sufficient (work area, equipment, etc.) and the area is free of as many distractions as possible.” 


“Keep your home office area clutter-free. If your office is frequently messy, you’ll find it distracting. I have a hard time focusing on my work if there’s a mess just feet away from me. This might mean that you spend your first 15 minutes each day tidying up before you get started. It also means you may need to select a space that’s less likely to attract constant clutter from others.” — Brianna Johnson, consultant, ConvergenceCoaching LLC

 

Expect distractions

“Don’t sweat the background noise — we are all humans. If you are in a meeting and the phone rings, dog barks, or toddler yelps out, it does not reflect poorly on you as a professional. If you are worried about an interruption, you can give the disclaimer at the beginning of the meeting to put you at ease if it happens later. (i.e., ‘Before we start, you should know that my three-year-old wakes up from his nap during our meeting time, so just a warning that you may hear a little voice in the background.’)”


“COVID-19 has created a new challenge with both my husband and I working from home while also caring for our 13-month-old son since he can’t go to daycare. Currently, our approach is to map out the day with our scheduled calls and meetings, and to take turns between watching our little guy and working. It requires longer work days since we have to make up missed hours once he goes to bed, but we’re also enjoying the increased quality time with him. ... I’ve also noticed that if you give clients a heads-up that you are dealing with these new responsibilities, they really seem to understand and have sympathy, or are even in the same situation. We got to witness my son’s first steps at home, so we’re seeing the silver lining in this crazy schedule right now.” — Mindy Elniski, Senior manager, Lougen, Valenti, Bookbinder & Weintraub LLP

 

Maintain strong relationships

“Check in with subordinates and superiors regularly. To keep the ‘teamwork’ atmosphere and to ensure clear communication when you’re not seeing people regularly, I find it really helps to check in on a regular basis. Whether it’s through Skype, email or a phone call, it helps to keep you and others on the same page. It can really help with the feelings of isolation and separation!” — Mindy Elniski


“Video is a powerful connection tool. Encourage your team to turn on video for more impactful conversations and better connections, particularly when in-person interactions are not happening daily.” — Elinor Litwack

“Instant message or chat your colleagues and say, ‘Good morning.; Maintaining a level of social interaction is very important when working remotely. It’s crucial that you know and recognize that each of us are doing the same thing and we are all living in the same world. Get out and talk to your neighbors (from a six-foot distance, of course). Call your family and friends that aren’t living in your house. Interacting with people in general is very important for your overall mental health and sanity.” — Mike Sippel, principal, Green Hasson & Janks LLP

 

Create a communication strategy

"If your team is new to remote work, come up with a communication plan that fits into your team culture and enhances productivity. Some may prefer to call each other unannounced, as if they’re stepping into an office to ask a question. Other teams may do better with online chats, WhatsApp groups, Slack, scheduled calls, texts, etc.” — Elinor Litwack


“Stay in constant contact with your team members (supervisors and those you supervise) and calendar meetings to discuss overall status (and to simply talk/interact with another person).” — Mike Sippel

“Most people don’t realize that success in working remotely comes in large part from excellent communication. Setting clear expectations and communicating status on your work and responsibilities are both crucial.” — Brianna Johnson

 

Support a positive productive mindset

“Take a shower and brush your teeth! It may sound obvious, but feeling clean and fresh and ready for work is a helpful way to start out your working remotely day.” — Mike Sippel (pictured)

“Focus on what you can control and try to remain positive. In this crisis, there is a lot of negativity, especially on the news and through social media. Focus on how thankful you are to have a job and that you’re able to work from home given the current circumstances. Take a break and get fresh air. Whether it’s a walk around your block, a yoga session or home workout, or just a few minutes to relax and meditate, your mind needs a break. While it’s stressful enough during busy season, the change in working environment and the current health/economic crisis are the icing on the cake. Take time to clear your head and remember to breathe.” — Mindy Elniski


“Establish personal and professional boundaries and communicate them with your family and friends. It’s OK to diverge from that schedule to sneak in a quick dog walk or start a load of laundry when you need a mental break (much like a quick trip to the coffee machine in the office), but be sure to return back to the workspace, physically and mentally, to continue your workday. On the flipside, stick to your daily schedule and unplug at the end of the work day. It’s much easier for work to leak into your personal life as a remote worker. This seepage impacts your personal home life and relationships as well as your focus the next day when you don’t get adequate reprieve from professional responsibilities.” — Shannon McCain

 

Practice time management tips

“Have a clear plan for your priorities at the start of each day and try to knock them out earlier, rather than later in the day.” — Brianna Johnson


“To avoid distractions and maintain efficiency, try to keep up with your ‘normal’ schedule as much as possible. Have your morning coffee, have meals at your normal times, sleep at your normal times. Let your in-home ‘coworkers’ know your schedule to make sure everyone is clear on when they can bother you and when you should be left alone.” — Mindy Elniski

 

Boost your physical health

“Be active and exercise. Run/jog/walk outside, do at-home online yoga, and realize that many gyms and other services are offering at home/streaming exercise services right now.” — Mike Sippel


“Getting out of your chair is just as important as having a dedicated workspace. Sitting all day long is detrimental to our health. Try to set up a space where you can stand and work for portions of your day. If that’s not possible without distractions, get out of your chair every 50 to 60 minutes for a 10-minute break. It may seem counter-intuitive, but taking frequent physical and mental breaks is likely to lead to greater productivity and focus.” — Brianna Johnson

 

 

IRS warns of coronavirus-related tax scams

By Michael Cohn

 

The Internal Revenue Service issued a warning Thursday urging taxpayers to beware of scammers calling and emailing them about the stimulus payments they are expecting as a result of last week’s CARES Act, along with other schemes related to the novel coronavirus pandemic, as they could lead to identity theft and tax fraud.

Taxpayers and tax practitioners should be careful about falling for not only phishing emails, but also text messages, websites and social media attempts that request money or personal information.

 

"We urge people to take extra care during this period,” said IRS Commissioner Chuck Rettig in a statement Thursday. “The IRS isn't going to call you asking to verify or provide your financial information so you can get an economic impact payment or your refund faster. That also applies to surprise emails that appear to be coming from the IRS. Remember, don't open them or click on attachments or links. Go to IRS.gov for the most up-to-date information."

 

The IRS and its Criminal Investigation Division have noticed a slew of new phishing schemes directed against unsuspecting taxpayers who are already dealing with the fallout from the COVID-19 pandemic. In some instances, scammers are trying to convince taxpayers to sign over their checks to them. Scammers may use the crisis as an opportunity to entice taxpayers into “verifying” their filing information in order to receive their stimulus payments, and then use their personal information to file false tax returns in an identity theft scheme.

 

“History has shown that criminals take every opportunity to perpetrate a fraud on unsuspecting victims, especially when a group of people is vulnerable or in a state of need,” said IRS Criminal Investigation chief Don Fort in a statement. “While you are waiting to hear about your economic impact payment, criminals are working hard to trick you into getting their hands on it. The IRS Criminal Investigation Division is working hard to find these scammers and shut them down, but in the meantime, we ask people to remain vigilant.”

 

In most cases, the IRS plans to deposit the stimulus payments, now known as “economic impact payments,” into the direct deposit account that taxpayers have previously provided on their 2018 and 2019 tax returns. Taxpayers who have previously filed but not given direct deposit information to the IRS will be able to provide their banking information online to a newly designed secure portal on IRS.gov in mid-April. If the IRS doesn’t have a taxpayer’s direct deposit information, a check will be mailed to the address on file, but that’s likely to take much longer than a direct deposit. Taxpayers shouldn’t provide their direct deposit or other banking information for others to input on their behalf into the secure portal.

 

The IRS said that for retirees who don’t normally have a requirement to file a tax return, no action on their part is needed to receive their $1,200 economic impact payment. That comes after a reversal by the Treasury Department and the IRS, who earlier this week said seniors would need to file a “simple tax return” in order to receive the money, but then reversed course Wednesday evening (see our story).

 

Seniors should be especially careful during this period, the IRS cautioned. The IRS is reminding retirees — including those who receive Forms SSA-1099 and RRB-1099 — that nobody from the IRS will be reaching out to them by phone, email, mail or in person asking for any kind of information to complete their economic impact payment, also sometimes referred to as rebates or stimulus payments. The IRS is sending the $1,200 payments automatically to retirees, with no action or information needed from them to receive the money.

 

The IRS said to taxpayers that scammers may:

  • Emphasize the words “Stimulus Check” or “Stimulus Payment.” The official term is economic impact payment.
  • Ask the taxpayer to sign over their economic impact payment check to them.
  • Ask by phone, email, text or social media for verification of personal and/or banking information saying that the information is needed to receive or speed up their economic impact payment.
  • Recommend that they can get a tax refund or economic impact payment faster by working on the taxpayer’s behalf. The scam may be conducted by social media or even in person.
  • Mail the taxpayer a bogus check, perhaps in an odd amount, then tell the taxpayer to call a number or verify information online in order to cash it.

 

"Unfortunately criminals are taking this unprecedented pandemic as an opportunity to exploit the public,” said IRS special agent in charge Ryan Korner in a statement. “It is critical now more than ever to remain vigilant for scams that are attempting to steal your personal information and your money. All Americans should specifically be on the lookout for scammers trying to directly steal their COVID-19 Economic Impact Payment, as well as fraudsters trying to trick them into providing sensitive information by convincing them it is required to receive their payment from the IRS.”

 

Taxpayers who are on the receiving end of unsolicited emails, text messages or social media attempts to elicit information that claim to come from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), should forward it to phishing@irs.gov.

 

The IRS warned taxpayers not to engage potential scammers online or on the phone. For more information, visit the Report Phishing and Online Scams page on IRS.gov. Official IRS information about the COVID-19 pandemic and economic impact payments is available on the Coronavirus Tax Relief page on IRS.gov.

 

You might have a tax shelter and not know it. Coronavirus could make matters worse

By Shaun Hunley

 

Ask the average business owner if they have a tax shelter and they’d probably have a chuckle while wistfully thinking about how nice it would be to swim in crystal clear waters while their offshore bank accounts grew, unencumbered by state and federal taxes.

 

After all, the idea of a tax shelter is largely based on a caricature. Maybe it’s that auto repair shop around the corner that never seems to have any customers, set up by a shadowy accountant as a way for a nefarious client to show a business loss. Or it could be a shell company headquartered in the Cayman Islands that stashes away valuable assets from being subjected to tax. But the reality is far more nuanced than that.

 

There are many arrangements that lack any evil motive that the tax code still labels as a tax shelter. In fact, many business owners may have a tax shelter and not even know it.

 

Among other things, the IRS labels a tax shelter as a pass-through syndicate where more than 35 percent of losses are allocated to passive investors (like limited partners). If that sounds like a broad definition, that’s because it is. And because there’s so much ambiguity, it opens up various businesses, large and small, to classification, particularly many family businesses. That’s significant because there are serious consequences that can arise from being labeled a tax shelter.

 

Before we get into potential penalties, it’s worth exploring just how easy it is to fall under the broad scope of the tax shelter classification. Let’s say the proprietor of an interior design business formed an S corporation in 2019. She owns 50 percent of the S corporation’s stock. The remaining 50 percent is owned by her adult nieces. The nieces aren’t involved in the day-to-day operations of the business. If the company generates a tax loss in 2019, it will be considered a tax shelter because more than 35 percent of the loss is allocated to the nieces (who are limited entrepreneurs).

 

This is a very real scenario for startup businesses, which often have limited investors and frequently experience losses in their first year. The phenomenon could be even more pronounced in 2020 when several companies will be reporting losses stemming from the COVID-19 pandemic.

 

Once a company is labeled as a tax shelter, it faces a variety of hurdles. One of the biggest challenges is that the IRS prevents firms designated as tax shelters from using the cash method of accounting. Instead, they would need to use the accrual method, which is harder to administer and can be burdensome for a business that lacks the resources to commit to their accounting departments.

 

Furthermore, once a small business gets tagged with that tax shelter label, it can’t get out of the interest expense deduction limitation rules. Small businesses (those with average annual gross receipts for the three prior tax years of $26 million or less) can deduct business interest expenses without limitations, but a tax shelter cannot do that.

 

This can all blindside the vast majority of businesses that meet these criteria, especially if the business has debt and passive investors. And that’s not just mom and pop interior design shops and hardware stores, but also real estate firms and virtually every pass-through venture in the history of Silicon Valley. In fact, preparers and CFOs alike were shocked when it was included as part of the Tax Cuts and Jobs Act.

 

Fortunately, being a syndicate doesn’t, by itself, subject businesses to the arduous tax shelter penalties. However, if the principal purpose of the entity is to avoid or evade federal income tax, the penalties will apply. Also, there are penalties for promoting abusive tax shelters and aiding and abetting in an understatement of a tax liability. According to the IRS’s website, penalties can span from $1,000 (or, if less, 100 percent of the income derived from the arrangement) for each organization or sale of an abusive plan or arrangement, and up to $10,000 if it involved a corporate tax return. That puts both businesses and preparers on the hook with little-to-no room for error.

 

As the whole world fixates on the COVID-19 outbreak and wrestles with the realities of the ensuing economic fallout and the extensions to pay taxes that the federal government is doling out, these are the intricacies that could catch a business (that is already stretched to the limit) off-guard. It will be up to everyone from preparers to proprietors to make sure that they are fully compliant; otherwise they could be in for an unwelcome surprise the next time the IRS comes calling.

 

 

A spur to change

By Daniel Hood

 

Change is difficult and annoying and expensive — and all too easy to put off. The arguments against maintaining the status quo are theoretical; the cost and efforts involved in upsetting it, on the other hand, are quantifiable, and usually daunting. And so, in the end, we often change less quickly and less thoroughly than we need to.

 

You might well imagine that this is leading up to a discussion of the U.S. response to the coronavirus — and in a sense, it is — but it’s actually much more about the accounting profession’s slow response to two major trends, and why it must take this chance to change more quickly.

 

The first trend is about remote work. Survey after survey shows that young accountants prefer the flexibility of working from wherever they have an internet connection, but firms have been excruciatingly slow to give them this ability. They treat it as a perk, instead of a major retention tool and business continuity tactic.

 

The fact is that the exigencies of social distancing and the need to slow the spread of the coronavirus are going to see more and more workplaces closed across the country, and those firms are that haven’t at least begun to roll out technologies and training and policies are going to find themselves struggling to rebuild workflows, maintain teams, and deliver what clients need.

 

There’s very little short-term advice I can offer to make up for lost time, other than to jump in with whatever ad hoc solutions you can make work, and to recommend near-constant communication. Make sure you and your teams are calling, emailing, Skyping, Slacking, texting and otherwise generally keeping in touch to a degree that seems excessive. In the end, it won’t be excessive — it likely won’t be enough. Long-term, though, I would tell you to let this crisis be a spur to creating a serious plan around remote work, so that you can create a more attractive workplace for young accountants, better serve clients and be ready for future disasters.

 

The other trend is around advisory work, which you can start working on right now. The need to shift focus from backward-looking compliance services to more proactive consultative services has been talked about a great deal over the past few years, but many accountants have struggled with how, exactly, to make that shift.
Here’s how: Start calling your business clients right now to discuss the challenges raised by the coronavirus. They’ll need help assessing cash flow and making smart projections, reviewing loan covenants, lining up bridge financing, talking to banks and lenders, figuring out staff loads and employee counts, handling disrupted supply chains and much, much more. Set up a short checklist of issues to go over with them, and then open the discussion to any other issues they may see, and how you can help.

 

Don’t worry about pricing for now — in fact, if you can make it clear in advance that this isn’t being billed for, all the better. This is a tremendous opportunity to change clients’ perception of you, and to change both how you present your services and your value to them, and how you view yourself and your firm.

There are, obviously, much more important things to worry about during the current crisis than creating a robust infrastructure for your staff to work remotely or becoming more consultative, but if you can come out the other side of coronavirus further along in either of those areas, it will at least be a silver lining to what promises to be a long and difficult time for all of us.

 

 

 

There’s a battle brewing for taxpayers’ $1,200 government relief check for coronavirus

By Jenny SuraneRobert Schmidt

 

The world’s largest payment companies are fighting for their own piece of the U.S. coronavirus stimulus: an assignment to help distribute some of the relief money that will be sent to millions of Americans in the coming weeks.

 

Visa Inc. and Mastercard Inc. are lobbying the Treasury Department to be included in the options the agency uses to disburse funds, as are smaller firms PayPal Holdings Inc. and Square Inc. Their argument is if the government is looking to get money quickly and safely to families across the country, it needs to get with the 21st century.

 

“The features of the modern payments world are ideally suited to help here,” said Jodie Kelley, chief executive officer of the Washington-based Electronic Transactions Association, which represents more than 500 companies in the industry. “We are fast, we are secure and no one has to touch anything.”

Getting picked for the program would be a boon for payment companies, which often levy fees each time money is sent on their networks. The firms have been battered by the slowdown in consumer spending as governments around the world ordered people to stay home and businesses to shut.

Most firms lobbying Treasury have offered a discount from what they normally charge. One option, according to a person familiar with the matter, would be negotiating a flat fee for the work, rather than charging per individual.

 

Direct deposits

The Treasury Department hasn’t announced how it plans to disburse the checks. It will probably deposit funds directly into bank accounts using information it has from taxpayers, and Secretary Steven Mnuchin said on CBS’s “Face the Nation” on Sunday that the payments may begin arriving within three weeks.

 

By some estimates 14 million people in the U.S. don’t have bank accounts and many others still get refunds from the Internal Revenue Service by check, meaning the government doesn’t have their bank information.

 

The relief bill includes direct payments to low- and middle-income Americans, expands unemployment benefits and gives many companies access to emergency financing and tax breaks. Hoping to stave off an economic collapse, the Treasury is pushing to get the money out quickly. Depending on income, a person can receive as much as $1,200, plus $500 per child.

 

Visa and Mastercard are likely to be part of the options the Treasury Department rolls out to disburse the funds, according to a person familiar with the matter. The two have spent years building out two new networks — Visa Direct and Mastercard Send — which can instantly deposit funds into billions of bank accounts around the world.

 

“We believe we have an opportunity and responsibility to help support the efforts to respond to and recover from this crisis,” said Seth Eisen, a spokesman for Mastercard. He said the company doesn’t have any insight into how the government will decide to distribute the money. “We stand ready to help.”

 

PayPal and Square are pushing their digital wallets — PayPal, Venmo and Square Cash — as other options. The wallets have become a popular alternative to bank accounts for U.S. consumers in recent years.

 

A spokeswoman for Square pointed to a tweet from CEO Jack Dorsey last week asking the government to let the company help with the disbursements.

 

People need help immediately. The technology exists to get money to most people today (even to those without bank accounts). Square and many of our peers can get it done. US government: let us help. https://twitter.com/TheKingofReads/status/1242813019677130752 …

 

A Treasury spokesman didn’t reply to a request for comment, while a spokesman for Visa declined to comment. A representative for PayPal confirmed the company is in talks with Treasury.

 

Being included in the unprecedented payout could help electronic payment companies with a longer-term goal: getting more ingrained into the federal benefits system.

 

While direct deposit is often the most popular way to receive government assistance, agencies have been increasingly turning to prepaid cards and other forms of electronic payments as a cheaper alternative to checks. In recent weeks, lobbyists for prepaid card providers have also sought to play a role in the stimulus disbursements.

 

Federal, state and local government agencies disbursed $137 billion through prepaid cards in 2018, or 2 percent of total expenditures, according to a September report by the Federal Reserve. The Supplemental Nutrition Assistance Program, which used to be known as food stamps, sent the largest share.

 

As the lobbying continues, one issue that the payment companies are trying to sidestep is that President Donald Trump seems to like the symbolism of Americans receiving a check in the mail. He has said he wants his name to be on the checks, or at least on a letter accompanying the money to show that it’s from him, according to people familiar with the matter.

 

That’s not surprising for a 73-year-old known for carrying large wads of cash around, but it might not bode well for those pushing for a digital alternative.

 

 

Tycoon behind Luckin loses $1B after accounting scandal

By Bloomberg News

 

The accounting scandal at Starbucks Corp.’s biggest competitor in China triggered a rout in shares linked to the company’s chairman, wiping out most of his wealth and knocking the tycoon out of the ranks of China’s billionaires.

 

Luckin Coffee Inc.‘s Lu Zhengyao, a former civil servant who built a name for himself as a successful entrepreneur involved in everything from ride-hailing to coffee shops, lost about $1 billion in the past day, according to data compiled by Bloomberg. The 60 percent drop in Lu’s fortune came after Luckin on Thursday disclosed it is investigating reports that senior executives and employees fabricated transactions. Lu wasn’t accused of wrongdoing.

 

Lu Zhengyao speaks during the company's IPO at the Nasdaq MarketSite in New York, on May 17, 2019.

It’s a stunning reversal of fortune for a man who began his career working for the city of Shijiazhuang in northern China before he aggressively built up a business empire over the past two decades. Lu, 50, became a billionaire after his coffee chain quickly gained popularity by offering java for as little as $1 a cup, a fraction of what Starbucks sells its drinks at.

 

Before Luckin, Lu started a vehicle insurance, rescue and maintenance business modeled after AAA of the U.S. In 2007, Lu founded a company called Car Inc. that would become Asia’s largest car-rental company by dangling rates as low as 50 yuan ($7) a day. The company sold shares in an initial public offering in Hong Kong in 2014 after an attempt at a U.S. IPO failed.

 

A year later, Car Inc. took on Uber Technologies Inc. in ride hailing, though with a twist. Instead of having drivers who use their own cars, Lu employed chauffeurs and went for a higher-end offering. It turned out to be a right choice, with the Chinese government later stepping up regulations for the industry. Car Inc.’s taxi-like service survived the clampdown relatively unscathed.

 

Lu has also added a piece of car manufacturing into his holdings by investing into Borgward, a German car brand that China’s Beiqi Foton Motor Co. was attempting to revive.

 

In 2018, Lu and several of Car Inc.’s core executives set up Luckin to tap Chinese consumers’ increasing appetite for coffee. While undercutting rivals’ prices, Luckin featured celebrities such as actress Tang Wei in ad campaigns. One of the Car Inc. executives that followed Lu to the coffee business was Jian Liu, whom Luckin on Thursday identified as having engaged in misconduct as the chain’s operating chief.

 

The warning about the accounting irregularities pushed Luckin’s shares down 76 percent on Thursday in New York, erasing $840 million off the value of Lu’s stake in the company. Car Inc. tumbled 54 percent the following day in Hong Kong. Though he doesn’t directly own shares in Car Inc., Lu controls parent UCar Inc., which fell 22 percent in the lightly traded Neeq market.

 

Lu, born in 1969 in the southern Fujian province famous for its business heritage, didn’t respond to calls made to his mobile phone Friday. He published a brief posting on the WeChat online messaging service though.

“We should be full of vitality, especially today,” Lu wrote. “Let’s cheer up.”

— With assistance by Ying Tian, Pei Yi Mak and Venus Feng

 

 

Coronavirus rescue plan for U.S. small business kicks off beset by concerns

By Mark NiquetteMichael Sasso

 

The Trump administration’s $349 billion small-business rescue kicked off Friday surrounded by concerns about its ability to handle an expected flood of applications and deliver enough aid to mom-and-pop firms hit hardest by the coronavirus pandemic.

 

Hours before the program started taking applications, lenders complained they lacked sufficient guidance from the Small Business Administration on how to process them. While new rules were issued late Thursday, it wasn’t clear how quickly lenders would be able to comply with them or how many would participate because of what some see as disadvantageous terms.

 

Advocates for lenders and small businesses also expressed concern on the eve of the program’s launch that distributing the money will take far longer than the same-day processing promised early on by the Trump administration. And with demand expected to far outstrip available funding, mom-and-pop shops will be at risk of losing out.


“There’s a sense of urgency that there’s not actually enough money in the loan fund for the number of people who actually are desperately in need of help right now,” said Amanda Ballantyne, executive director of Main Street Alliance, an advocacy group for small businesses. “Business owners are sort of scrambling to make sure they can get a spot in line.”

 

The relief package for small businesses is a key piece in the $2 trillion stimulus package President Donald Trump signed on March 27 aimed at shoring up an economy that ground to a halt amid the coronavirus outbreak. The 30 million small businesses in the U.S. employ half of the private workforce and their collapse would have long-lasting effects across the country.

 

Almost a quarter of them have already shut down temporarily in response to the virus, and 11 percent are on the verge of closing for good within the next month, according to a poll released Friday by the U.S. Chamber of Commerce. By one estimate, small businesses may need more than $1 trillion to replace lost revenue over the next three months — about three times the current package.

 

U.S. Treasury Secretary Steven Mnuchin said at the White House’s daily coronavirus briefing Thursday night that Treasury and SBA officials including the agency’s new administrator Jovita Carranza have been working around the clock to flesh out the program guidelines with input from lenders.

 

“This is an unprecedented effort by this administration to support small businesses, and we know that there will be challenges in the process,” Carranza said.

 

Mnuchin announced at the briefing that the SBA would bump up to 1 percent the interest rate lenders may charge small businesses under the relief program after lenders complained that the previous rate of 0.5 percent was below their own cost of funds.

 

In addition to drawing consternation from lenders and small business owners, the rollout is coming under fire from Republican Senators Josh Hawley of Missouri and Ted Cruz of Texas for what they said were restrictions on churches and religious noprofits.

 

The relief package, called the Paycheck Protection Program, allows small businesses to apply for loans of as much as $10 million, with payments deferred for six months. The loans, which are guaranteed by the federal government and don’t require collateral, will be forgiven if funds are used for payroll costs, mortgage interest, rent and utility payments for two months and if businesses retain and rehire employees.

 

But lenders were still waiting for guidance — which only arrived Thursday night — on what documentation they needed from borrowers and other guidelines to process the loans, said Julie Huston, chief executive of lender Immito LLC in Denver and chairwoman of The National Association of Government Guaranteed Lenders, a trade association of banks and finance companies that make SBA loans.

 

The banks will need time to review and implement the guidance and it isn’t clear whether enough lenders will sign on to the program to fill the need, Huston said.

 

“How crazy is this?” said Robyn Schultz, who operates Quality Electric, a commercial light industrial electrical company based in Birmingham, Alabama, that her husband’s family has run for more than 50 years.

 

“The government is issuing dates for people to apply, but the SBA doesn’t even have the guidelines,” said Schultz, who’d called her bank only to be told they needed more information and the local SBA office wasn’t able to help. “They can’t even tell you what you need to bring in to file the application.”

 

Governments the world over are taking steps to shield small businesses. Those countries with a tradition of state-aid, such as those in Europe, have proved most successful so far in rolling out initiatives.

 

In Germany, for instance, companies facing liquidity squeezes or whose income or capital have been eroded can ask for help from a state-run bank. In France, as of Thursday, 40,000 companies are benefiting from governments guarantees and have sought 7 billion euros ($7.6 billion) of loans.

 

A senior administration official, speaking on condition of anonymity, told reporters on Tuesday there could be millions of applications when the U.S. program goes live Friday. Individual restaurants and hotels that are part of large, multinational chains or owned by private-equity firms also will be able to take advantage of the program, which could squeeze out small businesses.

 

Borrowers must submit a two-page application with approved lenders, who will register the loans with the SBA, verify eligibility and disburse funds on a first-come, first-served basis. Small businesses with fewer than 500 employees can apply starting Friday, and independent contractors and the self-employed start April 10.

 

“That doesn’t mean everybody is going to get their loan tomorrow, but the system will be up and running,” Mnuchin said at the White House briefing Thursday. He said he’ll ask Congress for more funding if the money runs out.

 

Huston of the National Association of Government Guaranteed Lenders estimated demand could be three times the available funds.

 

Small businesses that have worked with the SBA in the past or have a disaster relief loan will have a “leg up” on other small businesses because they will have a track record with SBA preferred lenders, said Brian Crawford, executive vice president of government affairs for the American Hotel and Lodging Association.

 

Due to the volume of applications likely to be processed, Frost Bank is making the loans available to existing business customers only, said Bill Day, senior vice president and communications chief.

 

The size of the stimulus package is unprecedented for the SBA, which is on its third administrator under Trump and is already showing signs of strain in carrying out the task. In the past weeks, so many people tried to access an existing Economic Injury Disaster Loan program that the SBA’s website failed repeatedly, Bill Koontz, an SBA spokesman in California, said late last week.

 

Furthermore, Carranza, a former top adviser to Mnuchin, has been in the job for barely three months. The agency is seeking to boost employees and the White House is dispatching staff to help, according to people familiar with the matter.

 

“I’m very concerned that the systems that are perfectly adequate for normal operations just won’t be able to handle this,” said Karen Mills, a former SBA administrator.

— Mark Niquette and Michael Sasso, with assistance from Naomi Nix, Hannah Levitt, Ed Ludlow, Zachary R. Mider, Max Reyes, Emma Kinery, Katia Dmitrieva, Josh Wingrove, Susan Warren and Ben Brody

 

 

Some coronavirus stimulus checks may not arrive until September

By Laura Davison

 

Some people counting on $1,200 stimulus checks from the government may not see the money until mid-September, according to a House Ways and Means Committee analysis.

 

The Internal Revenue Service will begin making about 60 million direct deposit payments in mid-April to the people who have bank account information on file with the agency, according to the analysis sent to lawmakers on Wednesday.

 

Those payments will take about three weeks to process. The IRS then will begin putting paper checks in the mail in early May.

 

The IRS will send approximately 100 million checks at a rate of 5 million per week, which could take 20 weeks, according to the committee’s document, meaning the final round of payments may not go out until September. The checks will be issued in reverse “adjusted gross income” order — starting with people with the lowest income first.

 

The IRS expects to create a portal later this month or in early May to let people update their direct deposit information and check on the status of their payment.

 

Treasury Secretary Steven Mnuchin said at a White House briefing Thursday he hopes this will let more people get their money “within a couple of days” of submitting their information.

 

Tax returns

He’s also encouraging taxpayers to file their tax returns as soon as possible if they haven’t already, even though the deadline to submit tax returns has been delayed to July 15 from April 15, so the IRS has up-to-date direct deposit information on file.

 

“In this environment we don’t want people to get checks,” Mnuchin said. “We want to put money directly in their account.”

 

The document produced by the House committee indicates that the stimulus payments -- included in the $2.2 trillion economic rescue bill passed last week to combat the fallout of the coronavirus — could take months to circulate into the economy, potentially blunting the effect of a quick infusion of cash. Lawmakers have urged the IRS to process the payments quickly so that unemployed workers can use them to pay bills.

 

The law included payments of $1,200 for each adult earning as much as $75,000, or couples collectively making $150,000, plus $500 for each child under 17. Those amounts are reduced for people with higher incomes, and individuals with $99,000 in earnings (or $198,000 for a couple) get nothing, even if they have children.

 

The Treasury Department has said that Social Security beneficiaries who aren’t required to file a tax return don’t need to do anything to receive their payment, but the House document indicates those who aren’t required to file taxes annually might want to submit a “simple tax return” and include direct deposit information if they want to receive their payments faster.

 

 

 

10 things to know about IRS operations during the coronavirus pandemic

By Jim Buttonow

 

These are truly trying times for everyone. For the Internal Revenue Service, our nation’s tax (and now stimulus) administrator, times are about to get even more hectic.

 

The IRS is in the middle of a perfect storm. It’s in the midst of a busy filing season — with about 70 million individual tax returns still to be processed (as of March 20) for the 2020 tax year. The IRS is doing this work with about 20,000 less employees that it had 10 years ago. Now, with the passage of the CARES Act and other COVID-19 assistance laws, the IRS will have one of the most important and urgent jobs in our country: distributing many of the benefits in the stimulus package, including determining and distributing stimulus payments. It will also have to make significant changes to its returns processing and operations to account for all of the Tax Code relief changes found in the many new coronavirus relief provisions.

 

The IRS is adjusting its operations

This perfect storm requires the IRS to make significant adjustments to the way it does business. Until the COVID-19 epidemic is well behind us, the IRS will be doing its best to conduct business as usual while helping taxpayers by administering many of the recently passed COVID-19 relief provisions. For example, the IRS is urgently working on building remote work capability for many of its 70,000-plus employees — most of whom usually work from IRS locations and offices throughout the country. This transition will take some time in order to return to normal operations. In some cases, operations will not return to normal until well after the pandemic is over.

 

The IRS does have some experience in providing stimulus payments to taxpayers from the 2001 and 2008 recovery programs. However, the COVID-19 relief provisions are not as simple as the 2001 and 2008 programs — and they need to be implemented much more quickly than prior relief efforts.

 

For taxpayers and tax professionals, interacting with the IRS during the pandemic will be much different than normal. Here are 10 important things you should expect from IRS operations and interacting with the IRS until our country gets back to normal:

 

1. IRS.gov is the first place to answer your questions

IRS Operations, even under normal operations, cannot handle a flood of stimulus payment questions. Taxpayers should first look to the IRS’s coronavirus news and updates at IRS.gov/coronavirus. Critical future updates will be posted on the website — and most of taxpayers’ questions will be addressed on that site. For example, the webpage recently announced IRS plans to soon provide an online tool that will allow taxpayers to provide their bank account information (if the IRS does not have it already) for direct deposit of the stimulus payment. Many taxpayers are trying to call the IRS (and not getting an answer) to get stimulus payment answers when the best update will come from the IRS’s coronavirus webpage.

 

2. Live assistance is very limited

IRS phone lines are likely to be down for several weeks and Taxpayer Assistance Centers are closed indefinitely. Many IRS hotlines are not operational. This includes most service and all compliance hotlines (i.e., automated underreporter, collection functions, correspondence exams, etc.). Tax professional phone assistance through the Practitioner Priority Service line and local Taxpayer Assistance Centers is also unavailable. Taxpayers and tax professionals should not fear missed deadlines or enforcement activity, as the IRS has suspended almost all compliance activity (audits, collection, etc.) through July 15. The message here from the IRS is that we all can wait until July 15 to sort out any issues.

 

3. The IRS will be hard to reach, even after the pandemic is over

As in the “Great Shutdown of 2019,” the backlog of people needing to contact the IRS, taxpayer correspondence, and tax season filing issues will consume many of the IRS’s resources well after the pandemic is over. The IRS is planning to provide other means of submitting documents to the IRS (i.e., by use of email or increased access to the IRS by new e-fax lines). However, the IRS will still have a mountain of correspondence and clogged phone lines after normal operations resume.

 

4. You can put that audit on hold — unless it deals with a refund hold situation

The IRS announced, in its “People First Initiative,” that all new audits are suspended — and will be scheduled to resume after July 15. However, it is realistic to expect the IRS to use its audit power to stop suspicious or erroneous refunds. Taxpayers with questionable refunds (e.g., Earned Income Tax Credit returns, returns with highly questionable items, suspected identity theft returns, wage verification issues) will likely see IRS filing filters stopping their refunds until the taxpayer can verify the return. These refund freeze audits should continue to occur and be a source of taxpayer frustration as taxpayers will not be able to get an immediate response from the IRS until operations return to normal. Taxpayers with a hardship may seek immediate assistance from their local Taxpayer Advocate Service office.

 

5. If you owe back taxes, you have a temporary reprieve

IRS Collection enforcement is halted through July 15. Also, as a part of the People First Initiative, all liens, levies and passport restrictions are put on hold. IRS processing of pending collection alternatives, including offers in compromises, are on hold through July 15. Taxpayers can still go online to the IRS’s Online Payment Agreement tool if they want to set up a new payment plan on a balance owed.

 

6. IRS will not require your monthly installment agreement payment

The IRS announced in its “People First Initiative” that taxpayers are not required to make a monthly payment, from April 1 through July 15, on an established IRS installment agreement. Taxpayers who make payments by check will simply not make their payments during this time — and the IRS will not “default” their agreement. However, if you pay by direct debit through your bank account, you may be out of luck. The IRS initially stated that taxpayers should contact their bank to stop the drafted payment. Most banks have stated that they cannot stop the draft and taxpayers need to contact the IRS directly to void the draft.


Taxpayers are in a pickle: IRS phone lines are closed, so taxpayers cannot contact the IRS to “skip” the automatic payments during this time. Also, the IRS is not automatically suspending direct debit payments. The IRS has not provided any guidance on how it will enable taxpayers to initiate a skip on their scheduled drafted payments. More to come on this issue (see IRS.gov/coronavirus). Again, taxpayers with a hardship should contact the local Taxpayer Advocate for help in skipping automatic payments.

 

7. IRS Transcripts are usually your best method to answer to account-related questions

Many “account-related” questions can be answered by reviewing IRS transcripts. Prior AGI, amount of estimated tax payments made, and amount of penalties assessed are examples of common questions that can be answered on an IRS account transcript. Taxpayers can also get a copy of their last three years tax returns (an IRS tax return transcript) and their W-2s/1099s for the past 10 years (an IRS wage and income transcript). Taxpayers can access these transcripts immediately by setting up an IRS online account and using the IRS “Get Transcript” tool. Taxpayers can also call the automated “Get Transcript” hotline and order their transcripts to be delivered to their address on record with the IRS.

 

8. TAS can be reached if you have a hardship — but you must call your local office

This includes taxpayers who have a refund hold and are experiencing a financial hardship. The TAS Central hotline is closed — but taxpayers can contact their local advocate by phone. A list of the TAS can be found here: https://www.irs.gov/advocate/local-taxpayer-advocate

 

9. The IRS is still processing tax returns and it is best to file as soon as possible

Most stimulus payments will be determined from filed 2019 returns (or 2018, if 2019 is not yet filed). It is a good time to file required back tax returns, especially for those who have not filed a 2018 and 2019 return. These returns can be e-filed and accepted in a day. The IRS also announced that those who do have not needed to file in the past may need to do so to obtain a stimulus payment. Per the IRS: “IRS.gov/coronavirus will soon provide information instructing people in these groups on how to file a 2019 tax return with simple, but necessary, information including their filing status, number of dependents and direct deposit bank account information.”

 

10. IRS tax collectors will not grab the stimulus payment to pay past tax debt

As part of the stimulus relief, the IRS will not apply the amount of the stimulus payment against any balances owed. There is one exception when the IRS will take the taxpayer’s stimulus payment: to pay a taxpayer’s delinquent child support obligations. Otherwise, all taxpayers, regardless of whether they owe tax debt or not, will receive their stimulus payment.


Taxpayers should also know that although IRS operations are administering the stimulus payments, they do not make the rules on who gets relief and how much is paid. Congress, in the various laws enacted, makes these rules. As in any law, there can be some that are left out. For example, many college students who are dependents of their parents will not see most direct benefits from the stimulus packages. Taxpayers with comments about the CARES Act and other enacted laws should direct them to their elected officials, not the IRS.

 

Bonus: You can help

Although the IRS cannot do anything about the enacted laws, it can take suggestions on how to best administer any tax rule — and stimulus relief. Taxpayers can go to the Taxpayer Advocacy Panel’s website and submit their recommendations at: https://improveirs.org/speakup.aspx. (Full disclosure: I am a member of the TAP, an IRS advisory committee that readily takes suggestions from taxpayers and tax professionals on how the IRS can better serve taxpayers and administer our tax laws.)


TAP has already heard suggestions from the public, such as creating an online lookup tool for taxpayers to know if they qualify and when they will receive their stimulus check. Feel free to add your suggestions to improve the IRS’s operations in providing the needed stimulus to taxpayers.

 

 

Billions in stimulus cash from coronavirus: Who gets it and how to get access

By Steven T. DennisLaura DavisonMike Dorning

 

This is normally the time of year when the federal government is collecting taxes due, but the devastating coronavirus now has the U.S. trying to rapidly dole out hundreds of billions of dollars in aid and tax breaks to businesses large and small.

 

There are different pots of money for different kinds of companies. Banks on Friday began accepting applications for the $350 billion available for small and medium companies under the Small Business Administration’s Paycheck Protection Program, established as part of the $2.2 trillion economic rescue package.

 

The Treasury and the Federal Reserve are still working on how to deploy more than $500 billion to purchase corporate and local government securities and provide aid for airlines, as well as companies like Boeing deemed essential for national security.


So how do you access the cash? Here’s a guide for some of the benefits that are available and how to qualify:

 

Small businesses

  • Benefit: SBA’s Paycheck Protection Program. Up to $10 million per small business or nonprofit organization. Almost $350 billion will be available on a first-come, first-serve basis.
  •  

Businesses can get a loan at 1 percent interest to cover up to 250 percent of average monthly payroll costs — including group health insurance premiums, retirement contributions and state and local payroll taxes, even cash tips that the employer recorded. The loan will be forgiven for businesses that retain or rehire workers to restore their Feb. 15 headcount. If a company lays off workers or reduces payroll expenses, the loan forgiveness will be reduced or eliminated.

 

Who is eligible: Companies with fewer than 500 employees or otherwise meet the SBA’s definition of a small business, small nonprofits including religious organizations and even self-employed people who certify that the loan request is necessary to support ongoing operations given the pandemic’s economic uncertainty. Small businesses in the hospitality and food industry with more than one location can also be eligible if their individual locations employ less than 500 workers.

 

How to get it: Apply through a participating bank or lender. A sample two-page application form is available from the SBA website. Be sure to have appropriate documents showing payroll records for the entire previous year and payroll costs for the period including Feb. 15. Also bring records showing the business’s utility costs and rent or mortgage interest costs. If the company doesn’t have an existing relationship with the lender, be prepared to satisfy Bank Secrecy Act requirements to prove the business is legitimate and show the identities of those with a beneficial interest.

 

Special limitation: The money is capped at an annualized payroll rate of $100,000 per worker.

 

Bottom line: Get in line fast for this first-come, first-serve program. This is a no-brainer if you qualify, and tens of millions of businesses and nonprofits could be swamping bank offices in the coming weeks. The deadline for getting the loan is June 30, or until money runs out.

 

Airlines and related companies

  • Benefit: Up to $32 billion in payroll grants for airlines, contractors and cargo carriers, controlled by Treasury Secretary Steven Mnuchin.

 

Who is eligible: Airlines, contractors like catering companies, and air cargo haulers can get a combined $32 billion in grants to pay their workers.

 

How to get it: Companies need to continue flying routes required by the government and keep their employees on payrolls through Sept. 30. Outside firms are advising Mnuchin on the terms he should set, including what he will demand from airlines in return, such as warrants for equity in the companies. Mnuchin has said the money should be more than a bailout. He has solicited proposals from the airlines for terms on receiving the aid and has issued guidance.

 

  • Benefit: Airlines and cargo carriers can also apply for loans from a $29 billion pot.

Who is eligible: The same airlines and cargo companies eligible for the grants also have the option to apply for these loans.

 

How to get it: Companies also need to go through the Treasury to get these loans.

 

National security companies

  • Benefit: Up to $17 billion in loans for companies deemed crucial for national security.

 

Who is eligible: Boeing, with its aircraft manufacturing and broad supply chain, will be one of the clearest beneficiaries, although the law doesn’t specifically mention the company.

 

How to get it: The companies also need to go through the Treasury to get these loans.

 

Corporations and local governments

  • Benefit: The Federal Reserve has access to at least $454 billion it can use to leverage trillions of dollars in facilities intended to back up companies as well as state and local governments.

 

Who is eligible: This will be up to the Federal Reserve.

 

How to get it: The Federal Reserve facilities are still evolving. Mnuchin said lots of companies will be able to participate through broad facilities for both larger companies like energy firms and Main Street businesses.

 

Special limitations: The law includes restrictions on executive pay and stock buybacks for firms that access this aid. Congress set up a series of oversight mechanisms to review how all of that cash gets spent, including a special inspector general, an accountability committee of relevant government departments and an oversight panel.

 

Other perks available: tax cuts and deferrals

  • Benefit: Turn business losses into cash refunds

 

Who is eligible: Any company that lost money in 2018, 2019 or 2020 but turned a profit in the past five years.

How to get it: If a firm can show losses from 2018 or 2019, it can go back five years to offset past profits and ask the IRS for a refund now. The IRS has not yet issued guidance about how to claim those refunds, but in the past the IRS has reimbursed companies within 45 days. If a business has losses this year, it can take the losses at the beginning of next year.

 

  • Benefit: Tax payment delay

Who is eligible: Companies of all sizes and individuals can delay filing their 2019 tax returns, paying any outstanding tax liability and submitting estimated taxes for the first quarter of 2020 until July 15.

 

How to get it: No action is needed for the extended due date for income taxes. The IRS also allows companies to delay filing their taxes until October 15, but that requires a form requesting an extension with the agency. Tax bills that aren’t paid by July 15 will start accruing interest and penalties, even for companies approved to file the return in October.

 

  • Benefit: Payroll tax deferral

Who is eligible: Corporations can also put off paying the employer-side payroll taxes they owe for up to two years. One exception: companies that get their Payroll Protection Program loans forgiven can’t defer their payroll taxes.

 

How to get it: Companies can defer paying all of the 6.2 percent payroll levies they owe the government for the rest of 2020 and can spread those payments out over 2021 and 2022. At least half must be submitted by the end of 2021.

 

  • Benefit: Employee retention tax credit

Who is eligible: Companies of all sizes and non-profits forced to close or slow business could be eligible for a refundable tax credit if they keep workers on the job. Firms that get Payroll Protection Program loans can’t claim this tax break either. Companies with more than 100 employees can only claim the tax credit against wages paid to employees with work curtailed by the pandemic.

 

How to get it: Employers can get up to $5,000 per worker they keep on the job during the downturn. The credit is applied against payroll taxes, submitted quarterly, but companies can also ask for an advance using these instructions and form from the IRS. The tax break is refundable, meaning businesses can get a check back from the IRS if companies have amassed credits larger than their payroll tax bills.

 

  • Benefit: Tax credit for paid sick and family leave

Who is eligible: Employers with fewer than 500 employees can receive dollar-for-dollar tax credits that reimburse them for providing paid sick and family leave wages for workers who have to take leave related to the virus. Self-employed individuals are also able to claim a similar credit. One important caveat: Paid sick and family leave reimbursed by the tax credit is excluded from the payroll costs that can be claimed as part of the Payroll Protection Program.

 

How to get it: Employers that offer workers up to 80 hours of paid sick leave and up to an additional 10 weeks to care for a child due to school closures can claim the credit for wages paid starting April 1. Companies can claim the tax breaks on their quarterly federal employment tax returns, but they can benefit more quickly from the credits by reducing their employment tax deposits. If the credit amount is larger than the federal employment taxes, companies can request an advance payment of the credits from the IRS.

 

 

Art of Accounting: Communicating with clients during tax season and coronavirus

By Edward Mendlowitz

 

Keeping in touch with clients is very important, especially during this period of isolation. Here is a way to provide updates to clients regarding their tax returns and to keep in touch generally.

 

First of all, everyone knows about the extended due date to July 15, but very few clients know how it will affect them and when they could expect to get their return completed. By now, most accountants have already spoken to their clients but, if you haven’t, I suggest calling each one to give an update. If you do not, they will definitely be calling you at some point, so this is a way to head off their call and show you are caring about them.

 

For returns you have completed, I suggest calling every client that has a balance due or an unexpected result with the reasons. You can make the calls from around 8:00 p.m. until around 9:30 p.m. I figure that if you are working late to help your clients, then the least they could do is talk to you “after hours.” I make a lot of these calls to individual clients starting at 8:00 p.m. since that is when things quiet down and the day’s production of tax returns is pretty much finished. However, I always call my business clients during business hours; I do not want to get them in the habit of after-hours calls.

 

When I make these late calls, no one minds and actually they appreciate it, with many expressing pleasure that I cared about them to give them a heads up. This also gives an opportunity for a substantive contact with the client, and to avoid having the client call me when they’ve received and looked at the return and want to know why there was a balance due or an unexpected result. Perhaps they would also be a little agitated by what they saw.

 

Another way of communicating — or rather managing client communications — is to designate a special time during the day when you return calls. Encourage clients to call you as much as they want and to leave detailed messages, or to text or email you with any questions or comments they want to make. Tell them you will respond to all calls, texts and emails between 3:00 p.m. and 4:00 p.m. or, if that is not good for them, to give you a more convenient time for them.

 

What this does is keep the channels of communication open, lets them call, text or email you whenever and however and as often as they want, and enables them to get their questions off their minds. They will also have the confidence that you will respond in the time period you’ve provided so they will more than likely be free to accept your call. This idea was suggested by Mel Leone, a CPA from Huntington, New York, who commented that, with clients sequestered in their houses, they have more time to inundate him with their calls. Also, the 3:00 p.m. to 4:00 p.m. window sends a “message” that your call will be brief and not chatty.

 

If a client’s calls or questions will require time for you to prepare, you should either call, email or text a time when you will call them to respond to their question, so it is not something you would need to stop and work on.

Another thing I am doing more of is to call clients to “check in” and see how they are doing. This shows availability and that I care and also that I might find out some ways I could help them. I particularly try to call clients who are home alone.

 

I mentioned previously that Zoom and Skype work well, and while I am using them for group calls, I still like the one-on-one telephone calls. I just push two buttons and the phone dials the number. I could call clients when I am walking around my neighborhood.

 

I hope you have picked up some takeaways and are managing well and staying safe. We are fine at my house.

Do not hesitate to contact me at emendlowitz@withum.com with your practice management questions.

 

Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People List. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz, and “Managing Your Tax Season, Third Edition.” Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com along with the Pay-Less-Tax Man blog for Bottom Line. Ed is an adjunct professor in the MBA program at Fairleigh Dickinson University teaching end user applications of financial statements. Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 743-4582 or emendlowitz@withum.com.

 

 

Coronavirus and Wayfair decision affecting state tax revenues

By Roger Russell

 

The coronavirus has caught a number of states off guard, threatening their revenue and impairing their ability to meet obligations that have grown as a result of the epidemic.

 

Many states have closed nonessential businesses to encourage social distancing during the crisis, resulting in a sudden loss of sales tax receipts coming into the state, potentially creating large budget shortfalls, according to the National Taxpayers Union Foundation.

 

And some states are failing to take advantage of the opportunity afforded by the Supreme Court’s Wayfair decision. .

 

“Two states, Missouri and Florida, have done nothing to implement Wayfair legislation,” said Scott Peterson, vice president of U.S. tax policy and government relations at tax technology provider Avalara. “Without Wayfair, out-of-state merchants get to make sales into a state, but states and counties are unable to tax the sales.”

 

Missouri provides one example. “The Missouri sales tax structure is complicated, but there’s no dire financial need to fix it,” said Peterson. “In Missouri, the sales tax is one of three big taxes. They also have a corporate tax and a personal income tax.”

 

Peterson was the first executive director of the Streamlined Sales Tax Governing Board. “That’s one of the dilemmas we faced when I was running SST,” he said.

 

One example, and perhaps the hardest hit, is Florida, according to Peterson. “How do you get states interested in changing their sales tax when sales tax is one of three taxes, and not the big one? In California the personal income tax is much bigger than the sales tax. That’s somewhat true of Missouri.”

 

Florida provides somewhat of a counterexample. “But contrast that with Florida,” Peterson added. “Florida relies heavily on tourism for its economy, raising 79 percent of its revenue through sales taxes on in-state purchases rather than economic nexus. The state has no personal income tax. It has a corporate tax, but the real moneymaker is the sales tax. I testified several times before the Florida legislature, but their position was that they were conservative and would not do anything to to tax their citizens more than they had to.””

 

Florida has since come under fire after news reports emerged of spring breakers enjoying the beaches.

 

“Now all the beaches are closed because they weren’t practicing physical distancing even after spring break,” said Peterson. “And Florida counties are banning hotel stays and short-term rentals. It’s a perfect storm from a government funding perspective with no shopping and no tourism. Add in the fact that the unemployment taxes that the employer is responsible for were recently reduced to a level that doesn’t allow them to get through the unemployment threat they will be faced with. Likewise, New York State is woefully underfunded. They will run out of funds soon, and a bunch of other states are in the same position."

 

Unemployment insurance is another worry, despite some of the provisions in the recently passed CARES Act extending unemployment benefits. “Quite a few states have one year of unemployment insurance funds, but many states have a balance that’s much lower than what’s recommended by actuaries,” said Peterson. “The Florida legislature will have a big challenge when their rainy day fund runs out. Some states put less money into rainy day funds than others.”

 

That is now coming back to haunt them. “We don’t remember the past very well, and it’s very easy for humans to imagine ‘that can never happen again,'” said Peterson. “But what happened this time is much worse than what happened before.”

 

Although every state will be hit by the coming recession, Florida has particular issues, Peterson warned ”A vacation rental owner who uses the rental payments as extra income might be less affected than someone that uses the income to pay off a mortgage. It will hurt Florida because they’re so dependent on tourism, and they depend on sales tax and lodging tax.”

 

Other states are facing their own issues with coronavirus. “What we’re saying about Florida is true of a lot of other states,” Peterson said. “Issues in states that are just sales tax based such as Tennessee, South Dakota, Wyoming, Washington and Texas, are more aligned with Florida’s problems than some of the other states.”

 

COVID-19 has changed calculations across states and countries, far beyond thoughts of taxes. “We’re past the point of choosing how we shop — the coronavirus has made that choice for us,” said Peterson. “This includes online grocery sales going through the roof. Florida needs to get in line with South Dakota-style Wayfair rules — economic nexus and thresholds, and adopt marketplace facilitator legislation.”

 

The Supreme Court decision in the Wayfair case combined with the pandemic are having a wide-ranging impact. “It’s one thing to have economic nexus, but states also need to impose the obligation on marketplace facilitators,” Peterson added. “If you just have economic nexus, then all those retailers that sell on the marketplace have the obligation to collect, but the marketplace doesn’t. The states have figured out that if they make the marketplace collect, they can collect on the really small sellers that they couldn’t otherwise, since many of the smaller retailers don’t meet the threshold for economic nexus.”

 

 

 

Most taxpayers lack 1099 forms for reporting crypto transactions

By Michael Cohn

 

The Internal Revenue Service is including a question at the top of Schedule 1 of the Form 1040 this year asking taxpayers whether they received, sold, sent, exchanged or acquired a financial interest in virtual currency in 2019, but most taxpayers won’t have any record from a Form 1099 about their cryptocurrency transactions.

 

Only two crypto exchanges are known to provide investors with 1099 tax forms: the Winklevoss twins’ Gemini and Paxos, according to a new report from tax and accounting compliance technology providers Blox and Sovos. The report predicts that two-thirds of cryptocurrency investor clients could face underpayment penalties on their 2019 returns.

 

“We definitely have heightened scrutiny of taxpayers this year as opposed to the last few years,” said Sovos solution principal Wendy Walker. “Having watched this evolution the last couple of years, there is a lot more concern this year than in past years. It’s not only that new question [about virtual currency] that has been added to the 1040, but also because last year, the IRS mailed 10,000 enforcement letters presumably to Coinbase users that they had summonsed previously, and recently a Bitstamp summons went out. In general, people are more aware that there could be obligations. Various tax professionals like myself are still clamoring for more guidance and clarity from the IRS so taxpayers don’t continue to be concerned that they’re going to risk a penalty when they are attempting to report transactions based on the limited guidance that we have.”

 

Last October, the IRS issued guidance on cryptocurrency transactions after not saying anything official since 2014, despite the growing popularity of cryptocurrencies like Bitcoin and Ethereum. However, that guidance still left many tax practitioners wanting more.

 

“I think it produced more unanswered questions unfortunately,” said Walker. “While there was some clarity in the guidance in maybe the way the IRS viewed, for example, how you should obtain the value of an asset, generally the revenue ruling that came out around the hard forks and airdrops was the sort of thing you don’t see that often. In fact, the last couple of years we’ve been talking with a lot of folks, and we’ve been documenting the transactions that we’re seeing, and there are so many more than what were focused on here. The IRS hasn’t even tried to tackle some of those transactions.”

 

The IRS revenue ruling and the more informal frequently asked questions page may still be useful to some taxpayers, however. “While the frequently asked questions aren’t published guidance, they do provide a lot of insight into how the IRS was thinking about this,” said EY Global blockchain tax leader Michael Meisler during an interview last month. “Between that and the revenue ruling that was issued in 2019 dealing with hard forks, I think that many taxpayers or their advisors looking at that guidance might find that they have taken positions in the past that are inconsistent with some of this guidance. The revenue ruling in particular dealing with hard forks is published guidance and does establish authority for the position that any receipt of tokens pursuant to a hard fork previously — for example, Bitcoin cash at the time of the Bitcoin hard fork back in 2017 — that revenue ruling makes it clear for 2019 to 2024 that the new tokens that are received following a hard fork in a blockchain should be recognized as ordinary income at fair market value. I believe that taxpayers had inconsistent tax positions with that one. There was a diversity of views, including not recognizing any income at all, excluding the basis from the original asset, or taking a zero basis in the new asset and just not recognizing income at the time.”

 

Blox and Sovos surveyed U.S.-based CPAs who offer cryptocurrency accounting and taxation services to businesses and individuals that interact with digital assets. More than 50 percent of the CPAs polled believe most of their crypto clients probably owe back taxes.

 

Missing data from clients was the biggest pain point cited by the survey respondents, with 90 percent of the CPAs polled identifying missing data as one of their biggest challenges. That concern surpassed manual calculation and cost basis (67 percent), and government regulation (55 percent).

 

However, the problem of missing data isn’t under the control of most cryptocurrency investors. Less than 50 percent of crypto tax clients have access to their complete crypto transaction data. While some crypto exchanges have tried to make it easier for users to get these records, others don’t have automated reporting or regulatory content management, and it’s hard for many crypto investors to retrieve their records. When asked how many of their clients understand taxable crypto events, most of the CPAs polled believe only 16 percent completely understand them.

 

“One of the biggest challenges is to consolidate the data,” said Blox CEO Alon Muroch. “We have so many different types of transactions happening on different blockchains and exchanges, and they’re not exported in the same standardized format. Just consolidating all of the data to get to a point where you have a complete normalized data set is a challenge. That definitely extends the day-to-day and the yearly report that a company or an individual needs to submit. The data is definitely a big challenge, especially with the amount of new transactions, protocols and instruments being created every month.”

 

“We heard that the exchanges are telling the IRS they don’t have access to all of the data to provide the cost basis reporting,” said Walker. “There are so many exchanges operating, and only covering certain types of assets that are out there. Being able to keep up with that data themselves is certainly difficult for any one exchange, let alone a taxpayer jumping across multiple exchanges. That’s why getting the data they need is probably the number one issue they cited.”

 

The cryptocurrency market has been characterized by huge volatility, but that’s also being seen now in the traditional stock and bond market this year due to the coronavirus pandemic. “The crypto market was just a bit more volatile than the traditional market, which says a lot about the traditional market and what happened in the past month or two,” said Muroch. “I think that we are at a point where Bitcoin and Ethereum are becoming more widespread, so what we are seeing is maybe people adopting them as just a hedge. Volatility is definitely part of it, but it was not as volatile if you go back in history, especially if you compare it to traditional markets.”

The extension of the income tax filing and payment due date until July 15 as a result of the coronavirus added another level of complexity for taxpayers with cryptocurrency and other types of assets. “When you get into the 1099 filing due dates, retirement account filing due dates and income tax filing due dates, all these different due dates are intertwined with one another,” said Walker. “One of the issues we’re having is that the IRS extended the income tax filing deadline, but it’s intertwined with when the payer is required to file information with the IRS, and also at the state and federal level. So whether the retirement account is invested in crypto assets or traditional assets, we’re having that problem.”

 

The IRS guidance on the proper tax treatment is worth examining to glean some answers, according to EY Global’s Michael Meisler. “All of this guidance, along with the frequently asked questions, which give you insight into the Service’s views on accounting methods, the fact that they would default for FIFO or allow you to use specific identification, may warrant looking at previously filed returns and considering both not only how you file for this year, but whether or not there’s a reason to look at previously filed returns and amend,” he said. “In all circumstances, I think everyone should be aware that the IRS is interested in enforcing compliance in this area. Taxpayers, if they engage in transactions with cryptocurrencies, should consult with an appropriate advisor and make sure that they are reporting their gains and losses accurately.”

 

 

 

 

Be clear, be calm during coronavirus

By Kyle Walters

 

Sometimes it takes a crisis to get people to take action. Now is clearly one of those times.

Whether government-mandated or strongly recommended, millions of professionals and knowledge workers will be working from home for the foreseeable future until we get a handle on the COVID-19 coronavirus.

 

Working remotely has swiftly gone from a nice-to-have employee benefit to our only way of doing business. If every office building in America is closed, how can you make sure your firm is operating smoothly and that you’re able to communicate with your clients and your team?

 

To avoid feeling overwhelmed and isolated, it’s helpful to break these decisions into three important buckets:

1.Client communication

2.Team communication

3.Document transfer and sharing

 

Let’s take them one at a time:

 

Note: I have no commercial relationship with any of the products and services mentioned here and their inclusion should not be construed as an endorsement.

 

1. Client communication

There are two types of communication you need to emphasize: one-to-many and one-on-one.

 

One to many: It’s essential to send regular emails to clients keeping them apprised of how your organization is handling the crisis and the steps you’re taking to ensure smooth operations. As news develops that may impact your clients, put together a well thought-out email and send it to everyone. Being proactive will eliminate hundreds of incoming calls that flood your office every time the IRS releases a new statement about how the coronavirus will affect their returns.

 

I recommend reaching out to your clients at least once per week between now and the end of April. You don’t need to start from scratch each time. Just set up a simple template that has room for three to five important updates each week, plus a direct phone number for clients to call.

 

One-on-one: For your top 20 to 30 clients, I recommend calling each of them personally. You have the time to do this! Check with your best clients to find out how they are doing during this crisis and what their biggest concerns are. This is where you add value!

 

Even better than calling clients, why not FaceTime them? It’s not like you have to set up a complex webinar just to see their faces. FaceTime, Screen Share and other video-chat apps are simple to use on your phone or PC. They will accelerate trust if clients can see your reassuring face and can make eye contact with you.

 

Again, you should also be calling your best clients directly to reinforce that you’re there for them and that you’re always available if they have issues or concerns about important decisions they’re planning to make. During scary times like these, you need to be the calm in the storm.

 

2. Document sharing/transferring

There’s a chance that all office buildings may be closed throughout the U.S. and clients may not be able to drop off information at your place of work. Client portals are quickly going from a nice-to-have amenity to an essential tool for CPA firms. You need to get all of your clients (and staff) up to speed on using your portal, regardless of their age or their technical acumen. A good way to do this is to send a ”how-to” email with written instructions and a video walk-through.

 

Ask one of your staffers to record a short video that includes step-by-step instructions for using your portal. The video should quickly explain how to create an account, upload a document, and communicate with you online. Take a screen shot of each step, turn it into a PDF, and then record a short video. It shouldn’t take your staffer more than an hour to do this and it will save you hundreds of hours in client support time. Chances are, they’ll have fun with this assignment.

 

SnagIt is a great tool for taking screen shots. Loom is a great tool for shooting short-form video.

 

Rather than clients constantly sending you text messages with pictures of documents, here’s a better option. Have them download a scanning app on their phone, which they can use to turn document pictures into PDFs, and send to you via email. We use an app called TurboScan. Clients can also use the camera and scan tools located within the Notes app on their iPhones. Are you worried that clients won’t know how to use the app? Here is another great opportunity to create “how-to” instructions.

 

All of the tools and best practices above can be explained to clients in a “Readiness Email” that you send to clients on teaching clients how to work through this difficult time period.

 

Very important: Don’t just tell clients to use the portal and various apps; you need to show them how to do it step by step. This will save you and your teams time, as well as help clients become more comfortable with a more efficient way of doing business with you.

 

3. Team communication

In order to prevent yourself and your staff from being bombarded by back and forth emails during these unprecedented times, you need to set up an internal team messaging system. Microsoft Teams and Slack are good options for this purpose.

 

Slack is an internal messaging system that’s incredibly easy to set up. At our firm, we never send emails to each other; we only use Slack. Emails are reserved for clients! With tools like Slack, you can set up different “channels” for your internal team such as “Tax Return Questions,” “Coronavirus Updates,” “General” etc.

 

All internal communications can live in those channels as though you are in the office.

 

None of the tools and tactics mentioned in this article are brand new. They’ve been battle-tested and they work. In fact, you should have had these processes in place long before coronavirus rocked our world. If you’re able to lean into this new landscape and become anti-fragile, you’ll come out of this crisis as a much better organization. At times like these, it’s critical that you let your staff, your clients and your strategic partners know that you’re ahead of this crisis. As a leader, that’s your job. It all starts with communication.

 

 

 

U.S. government’s financial condition worsened by $8.16T in 2019

By Michael Cohn

 

Even before the start of the coronavirus pandemic, the federal government was facing dire financial conditions, with its overall financial condition worsening by $8.16 trillion in 2019, according to a new analysis.

 

The Financial State of the Union report from the group Truth in Accounting argues that the overall decline in net position of the government presents a more accurate picture of the federal government’s financial condition than last year’s budget deficit of $984 billion. The organization's measure of the government’s negative net position includes reported federal assets and liabilities, along with promised, but unfunded, Social Security and Medicare benefits.

 

“Our elected officials have made repeated financial decisions that have left the federal government with a debt burden of $113.27 trillion, including unfunded Social Security and Medicare promises,” said the report. “That equates to a $737,000 burden for every federal taxpayer.”

 

Truth in Accounting is giving the federal government a grade of F on its accounting abilities. It pointed out that the Treasury Department only includes $173.70 billion of Social Security and Medicare liabilities on the federal balance sheet because recipients supposedly don’t have the right to benefits beyond those that are currently due and laws to reduce or stop benefits can be passed anytime. The report pointed to $52.72 trillion in unfunded Medicare benefits and $37.60 trillion in unfunded Social Security benefits. The U.S. government has $3.99 trillion in assets compared to $117.26 trillion worth of bills.

 

 

 

Fighting anxiety and social isolation from the coronavirus

                                                                          By Tamera Loerzel       

 

COVID-19 has turned the world upside down. With this upheaval, compounded by social distancing and now stay-at-home orders, feelings of fear, insecurity, lack of control and anger are to be expected. A Harvard Business Review article equates these feelings with grief and explains the non-linear way grief manifests, which means that you might find yourself bouncing between many emotions at different times. This array of emotions can be intense for some and may cause increased anxiety coupled with feelings of isolation.

 

So, how do we help our team reduce feelings of anxiety and social isolation? Start with acceptance. This sounds simple but isn’t necessarily easy. Acceptance begins when we acknowledge what is happening in the present situation, versus how we wish it would be or our worry and concern about what might happen. To practice, we might say: “We are experiencing a pandemic right now. Our lives and work have changed. We have fears and worry about our health, finances, business continuity, the economy and more. We may be experiencing anger, fear or other emotions. But we can still take action.”

 

Acceptance is simply acknowledging the current state and your current emotions for what they are. Don’t invalidate the feelings that are arising — your own or others — or make them wrong. And it doesn’t make any difference who is forcing us to work from home. It’s no one’s “fault.” It’s a pandemic. Could some things have been handled better or communicated more timely and transparently? Perhaps. But that is in the past and outside our control. Instead of lamenting the past, we must now focus on the present.

 

Follow these five strategies to help you stay in the present and reduce anxiety and feelings of social isolation caused by this pandemic:

 

1. Practice mindfulness. Mindfulness is defined as focusing on the present moment, and it is a great way to manage anxiety and reduce other negative feelings or reactions you may be experiencing. Two ways you can practice mindfulness to bring yourself back to the present moment (instead of rehashing the past or worrying about the future) is by breathing and noticing your thoughts.

 

Practice a simple breathing exercise comprising a four-count inhale, holding it for a count of two, and then a four-count exhale. Do this three or four times in a row — at your desk, outside, in your car, or before you go to sleep. When you’re feeling overwhelmed or your mind is racing, do this breathing exercise and then notice your thoughts, without judgment. Just observe them like clouds moving through your mind without assessing them, interacting with them or trying to do something with them. Doing both — breathing and just noticing your thoughts — can reduce your feeling of anxiety and bring you back to the present moment. And, you’ll likely feel more peaceful and have more clarity and energy for what to do next.

 

2. Maintain positivity. A positive mindset can go a long way during a difficult time. Start by focusing on what’s working and what you’re grateful for, even with the fear and uncertainty around us. Feed your mind with positive imagery, thoughts and mantras. Be selective about your news sources and take a break from them throughout the day. Shift your thoughts and statements to hopeful outcomes, such as, “We will flatten the curve,” “Our medical facilities will be sufficient,” and “We will get through this together.” You can apply this to business decisions you’re facing, too. For example, “We’ll try not to cut staff and we’ll put bonuses on hold and reduce partner draws instead,” or “We’ll shift our service delivery model to virtual so we can complete these engagements,” or “We’ll put that initiative on hold for right now and revisit it this summer.”

 

3. Cultivate a connection mindset. With COVID-19 social distancing and stay-at-home orders, feelings of social isolation and loneliness are on the rise. According to an article in the Government Executive, “It’s critically important to foster connection during the novel coronavirus pandemic.” Human connection is necessary, so we are figuring out ways to connect with others while maintaining physical distance. To help reduce feelings of social isolation:

 

  • Check in regularly. During this time of social distancing, extraverts will be going crazy. They need outlets to communicate, socialize and problem-solve out loud. Introverts might seem fine, but they will tend to hold things in and that can be unhealthy because their internal dialogue will get louder and louder as it escalates worry, frustration and fear without another outlet. Left uncommunicated, it can manifest in withdrawing, lack of productivity, depression and even illness. Find ways to help both extraverts and introverts express themselves and be in communication with others.
  •  

Assign your career coaches or your partners and managers to specific people that they check in with daily either via phone or video conference. Small talk is important during this time and it may not feel comfortable for some. Provide examples of questions to ask, such as, “How are you doing today?” and “What support do you need?” and “What are you doing for fun and to maintain connections with family and friends?” Be careful not to launch into deliverables, client demands and problems without first understanding how each person is and what they’re dealing with that day.

 

  • Validate emotions and feelings. Make it safe for your partners and team members to express concern, worry or fear — and maybe even tears. When they can share their feelings, they can move closer to acceptance and then action

 

  • Find ways to socialize together. My colleague Brianna shared strategies for Maintaining a Strong Culture While Working Remote, including holding virtual happy hours and lunch hours, playing games together, celebrating victories and good news, and other ways to maintain office traditions while the team is working remotely. Try to maintain some of the practices you would normally do in the office — just get creative with how you can do them digitally. Having fun and playing together are important right now!

 

4. Communicate. And then communicate some more. One of the best weapons to promote acceptance and reduce anxiety is communicating information, decisions, and even address fears and concerns as they arise. We have always been proponents of over-communicating (just ask our team members and clients!).

 

  • Share the facts. Information is coming fast and furious and it’s difficult to keep up with and sort through what’s most important and valid. Dwelling in the unknown and uncertainty is difficult and can cause increased worry and fear and perpetuate feelings of lack of control. Sharing what you know now and as you solidify decisions can help you and your team take action. As more information becomes available, communicate it and shift plans as necessary. Taking even small steps can help preserve a sense of control and feelings that there are things you can do to address the situation.

 

  • Don’t wait until you have all the information or have all the answers figured out. It’s changing too fast — day by day and in some cases hour by hour. I have been proud of my Minnesota Governor Tim Walz as I’ve listened to some of his press conferences over the past few weeks. He has been transparent in communicating information he has and straight when he was uncertain. This allowed him and other state officials, medical providers, educators and business owners to take some steps to prepare for what was happening and predicted will come. Be nimble during these times. The adage “information is power” is true, ensuring it’s from reputable sources to help prevent misinformation, and allows you and your team to act.

 

  • Vary your communication. In addition to the differences between extraverts and introverts, people assimilate information differently, too. Be sure to deliver your communication in different ways, such as Zoom meetings, emails, Skype or Teams, videos, small group discussions and one-on-one conversations. And, be careful not to communicate solely based on your preference, or some of your team members will feel like they “never heard that” or “were not in the loop.” It’s more important than ever that you communicate frequently via different mediums.

 

5. Practice compassion. You could say this is our new normal, but normal is out the window and we are redefining it daily. Flexibility is key, and letting go of old norms and expectations, like learning how to be maximally productive in your new home environment with kids and dog noises in the background, will be required now. Practice compassion first with yourself and then with others as you navigate this new normal. You can do so by:

 

  • Acknowledging we’re all doing our best during these unprecedented times.
  • Being flexible in expectations and willing to negotiate them to make it work for everyone (capture those expectations in writing to provide clarity and agreement).
  • Considering the impact on others as you make decisions.
  • Communicating with empathy and kindness.
  • Acknowledging and appreciating others — sometimes for just showing up, remaining positive, and contributing to the team.

 

Feelings of anxiety, isolation, hopelessness and many other emotions are to be expected. We can mitigate them by practicing — and sharing — these strategies with our team (they can be beneficial for your clients, too!).

 

 

 

Two accounting scandals in China in one week burn investors

By Sofia Horta e Costa

 

China’s second accounting scandal in less than a week is underscoring concern over lax corporate governance at some of the country’s fastest-growing companies.

 

TAL Education Group, a tutoring business whose success turned founder Zhang Bangxin into one of China’s richest people, delivered the latest bombshell on Tuesday after saying a routine internal audit found an employee had inflated sales by forging contracts. The company’s American depositary receipts sank as much as 18 percent in late U.S. trading.

 

The sell-off follows the 83 percent slump in Nasdaq-listed Luckin Coffee Inc. since the company announced that its chief operating officer and some underlings may have fabricated billions of yuan in sales for 2019. Accounting firm Ernst & Young later said it discovered the fabrications when it audited the firm’s financial statements. Trading in the ADRs was suspended Tuesday.


While China Inc. is no stranger to claims of financial irregularities — particularly from short sellers who have targeted both TAL and Luckin in the recent past — the fresh wave of revelations is once again putting the spotlight on corporate malpractice at U.S.-listed Chinese firms. The fallout has already affected other listings from the nation and is likely to deter some overseas investors from buying into future initial public offerings.

The cases are “reviving the big question for investors in Chinese firms: the financial data may look pretty, but can you trust it?” said Alvin Cheung, associate director at Prudential Brokerage Ltd. “The latest case has further fueled anxiety over Chinese firms’ financials, especially under a slowing economy and a difficult business environment.”

 

Moves in other education stocks show how investor nerves can quickly spread: New Oriental Education & Technology Group Inc. lost 4.6 percent in U.S. post-market trading. Hope Education Group Co. fell 3.3 percent in Hong Kong Wednesday, while CAR Inc., a car-rental firm founded by Luckin’s chairman, dropped another 17 percent.The declines vindicate short sellers like Carson Block’s Muddy Waters, which has for years targeted Chinese firms listed on U.S. exchanges.

 

Peer Wolfpack Research released a new critical report on Iqiyi Inc. Tuesday, alleging that the Chinese video-streaming company overstates revenue and subscriber numbers. Muddy Waters assisted Wolfpack in its research and said it’s also short the company. Iqiyi denied the claims. ADRs in the company fell 3 percent in extended trading.

 

 

 

AICPA highlights tax filing shortcomings related to coronavirus relief

By Michael Cohn

 

The American Institute of CPAs has posted a set of frequently asked questions and answers aimed at helping CPAs and their clients with tax filing and tax relief in response to the novel coronavirus pandemic, while pointing out the various shortcomings in the federal government’s response to date.

 

The FAQ document notes, for example, that while the pandemic has closed business offices around the country so taxpayers may not received their mail and correspondence from the IRS, the agency still isn’t making things easier. “Unfortunately, the IRS has not expressly announced any relief for affected taxpayers in regards to correspondence,” said the document. “AICPA will continue to urge Treasury and IRS to provide generous and automatic relief for issues related to administrative actions such as expiring statutes of limitations, the processing of correspondence, and other actions not already covered by previous relief related to COVID-19.”

 

The AICPA has been pressing the IRS and the Treasury Department to expand its relief beyond the various due date extensions that have been announced already. Another area where tax relief is coming up short is in terms of the federal disaster declaration and how the IRS has responded to it.

 

“Typically, when the President invokes the Robert T. Stafford Disaster Relief and Emergency Assistance Act, taxpayers are granted broad payment and filing relief under section 7508A,” said the AICPA. “However, the IRS’s approach to COVID-19 has not been consistent with how the agency treated tax payment and filing deadlines over the last several years following a federally declared disaster. The AICPA continues to advocate the need for comprehensive relief with Treasury and IRS officials. This is a priority for our members.”

 

Earlier this week, AICPA president and CEO Barry Melancon (pictured) sent a letter to Treasury Secretary Steven Mnuchin asking for the Treasury and the IRS to extend more of the tax deadlines confronting taxpayers beyond the initial extension from April 15 to July 15.

 

“We believe it is impractical, if not impossible, for taxpayers and their advisors to continue business as usual when IRS’s own operations are minimally operable,” Melancon wrote.


The AICPA renewed a request for an immediate expansion of tax-related relief to all types of returns and payments due between March 3rd and July 15th and outlined several outstanding issues, including:

  • Other forms and elections: The due dates of additional forms and elections, such as the election to be taxed as a small business, need additional time.
  • Individual and corporate estimated payments: The first quarter individual and corporate estimates, which are typically due on April 15, were deferred to July 15. However, the IRS has not yet extended the second quarter deadline, which is still set at June 15.
  • E-signatures: It is also important for the IRS to take whatever measures are possible to allow taxpayers and their preparers to utilize technology, such as e-signatures, to keep a safe distance from others during the pandemic.
  • Information and other returns: Other returns due between March 3 and July 15, such as for certain estates, exempt organizations and other businesses, also need relief.
  • International filing situations: U.S. citizens living abroad or non-resident taxpayers who cannot leave may also be challenged to file.
  • Payment, penalty and administrative questions: The Treasury and IRS should offer generous and automatic relief for other issues related to administrative actions such as expiring statutes of limitations, the processing of correspondence, and other actions not already covered by previous relief but related to COVID-19.

 

To help CPAs educate and advise their clients, the AICPA has created a resource center dedicated to the Small Business Administration’s new Paycheck Protection Program that was included as part of the recently approved CARES Act, highlighting the emergency funding available to offset the impacts of the coronavirus on a client’s business, and a co-brandable tool to help small business clients understand the new funding option. Other tools include payroll calculators for loan applications, with three calculators for calculating maximum loan amounts depending on how long the business has been in operation and whether it’s seasonal. The Paycheck Protection Program has been off to a rocky start since it debuted last Friday, with many small businesses complaining that getting access to the promised loans has been nearly impossible.

 

 

 

IRS extends more tax deadlines due to coronavirus

By Michael Cohn

 

The Internal Revenue Service and the Treasury Department are extending a number of tax deadlines for individuals, trusts, estates, corporations and others due to the impact of the novel coronavirus.

 

In Notice 2020-23, they extended more key tax deadlines for both individuals and businesses Last month, the IRS said that taxpayers would generally have until July 15, 2020, to file and pay federal income taxes originally due on April 15. No late-filing penalty, late-payment penalty or interest will be due.

 

Thursday’s notice expands the relief to more returns, tax payments and other actions. As a result, the extensions generally now apply to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. Individuals, trusts, estates, corporations and other non-corporate tax filers can qualify for the extra time to file and make payments. That means anybody, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due.

 

Individual taxpayers who need extra time to file beyond the July 15 deadline can ask for an extension until Oct. 15, 2020, by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses who need additional time must file Form 7004. An extension to file is not an extension to pay any taxes owed. Taxpayers requesting additional time to file should estimate their tax liability and pay any taxes owed by the July 15, 2020, deadline to avoid additional interest and penalties.

 

Estimated tax payments

Along with the estimated tax payments for April 15 that were previously extended until July 15, Notice 2020-23 also extends relief to estimated tax payments due June 15, 2020. That means any individual or corporation that has a quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can wait until July 15 to make that payment, without penalty.

 

2016 unclaimed refunds deadline extended to July 15

For 2016 tax returns, the normal April 15 deadline to claim a refund has also been extended to July 15, 2020. The law provides a three-year window of opportunity to claim a refund. If taxpayers do not file a return within three years, the money becomes property of the U.S. Treasury. The law requires taxpayers to properly address, mail and ensure the tax return is postmarked by the July 15, 2020, date.

 

The American Institute of CPAs praised the tax filing and payment extensions.

 

“Over the last several weeks, we repeated our requests to Treasury and the IRS for extensive tax filing and payment relief. Today’s release of Notice 2020-23 is great news to the thousands of taxpayers and tax professionals who are faced with upcoming deadlines. The seriousness of this global crisis is overwhelming,” said AICPA president and CEO Barry Melancon in a statement. "While the AICPA appreciates the relief announced today, we continue to urge Treasury and IRS to develop a contingency plan for the next phase of relief, should that be needed. As a country, we should not risk anyone’s life to meet tax filing obligations.”

 

On Tuesday, the AICPA urged Treasury Secretary Steven Mnuchin in a letter to immediately expand the tax-related relief to all types of returns and payments. On March 27, the AICPA sent a letter to Treasury and the IRS asking for all federal income tax, information returns, and payments originally due between March 3, 2020 and July 15, 2020 be given extra time to file and pay until July 15, 2020.

 

Net operating losses carrybacks extended

The IRS also issued Revenue Procedure 2020-24 Thursday, which provides guidance under Section 172(b)(1) and Section 172(b)(3), as amended by the CARES Act. Section 2303 of the CARES Act amended Section 172 to require taxpayers with net operating losses arising in taxable years beginning in 2018, 2019, and 2020 to carry those NOLs back for the five preceding taxable years, unless the taxpayer elects to waive or reduce the carryback period. The revenue procedure also discusses how taxpayers with NOLs arising in taxable years 2018, 2019, or 2020 can elect to either waive the carryback period for those losses entirely or to exclude from the carryback period for those losses any years in which the taxpayer has an inclusion in income as a result of Section 965(a).

 

In Notice 2020-26, the IRS also granted a six-month extension of time to file Form 1045 or Form 1139 to do a carryback of a net operating loss that arose in any taxable year that started in calendar year 2018 and ended on or before June 30, 2019. Individuals, trusts and estates would file Form 1045, and corporations would file Form 1139.

 

COVID relief for partnerships with NOLs
 

On April 8, 2020, the IRS issued Revenue Procedure 2020-23, allowing eligible partnerships to file amended partnership returns using a Form 1065, U.S. Return of Partnership Income, by checking the “Amended Return” box and issuing amended Schedules K-1, Partner’s Share of Income, Deductions, Credits, to each of its partners. Partnerships filing these amended returns should write “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended return.

 

IRS live telephone assistance is currently unavailable due to the coronavirus, so the IRS is urging taxpayers to use its website, IRS.gov, where tax help is available 24 hours a day.

 

 

 

 

10 good habits for working from home

By Bill Hagaman

 

I hope as you read this, you and your loved ones are safe and healthy. As many of us enter another week of working from home, cabin fever is likely setting in, if it hasn’t already. You may find yourself struggling to keep spirits and energy up while in quarantine. Lack of sunlight, fresh air and social interaction impact our psyche. For those of us not previously acclimated to working in the same space we live, discovering how to divide and use our space to the best of our ability is vital to both our productivity and mental health.

 

In my recent weekly managing partner message to Withum, I shared a list of 10 tips I am personally practicing to keep myself motivated and energized. I’d like to share it with you with the hopes it may help.

 

1. Consistency

Create a routine and stick to it, particularly during the workweek. You want to be able to differentiate a Wednesday from a Saturday.

 

2. Keep up appearances

Get dressed every day. Get out of those pajama bottoms and throw on some jeans and perhaps a pullover from your firm.

 

3. Small steps

Make your bed. Starting your day with even this one small accomplishment is proven to set the tone for a productive day.

 

4. Keep others informed

Communicate your workload and availability with partners, managers and schedulers. Your proactive outreach is appreciated.

 

5. Seek help fast

If you are stuck on a problem, speak immediately to another engagement team member to get it resolved quickly. Don’t let it languish.

 

6. Stay in touch

Be sure to connect daily with another team member, preferably through Microsoft Teams or Zoom, with the camera on to maximize social interaction. We all need it.

 

7. Be early

When attending scheduled virtual meetings, “arrive” three to five minutes early. (Let’s face it, there’s no traffic to deal with or meeting rooms to get to.)

 

8. Overcommunicate

We don’t see each other around the office, so let others know what you are doing to stay busy, so there is no misinterpretation that you might not be doing anything (see No. 4).

 

9. Break it up

Be sure to take a break at some point during the workday. Have lunch with your family or friends. If the weather permits, go out and take a walk or bike ride (while practicing social distancing, of course). Spring is not canceled! Taking a little breather is a great way to re-energize and finish the day strong.

 

10. Attitude matters

Finally, and most importantly, stay positive and optimistic. This too shall pass. Utilizing these tips will put you in a position to make the most out of your time working while social distancing. No two home offices are alike, so find what works for you to create your own quarantine normalcy. Trial and error is key, so remember to practice patience.

I wish you and everyone in your firms the best of health and peace of mind as we get through this unprecedented time together.

 

 

 

The keys to leading a remote team

By Denise Clayton DelahantyAlan Anderson

 

Moving to remote work in a crisis mode oftentimes is a quick Band-Aid or bootstrap — but these basics will most likely serve as a solid foundation for the long-term evolution for firms to incorporate more of a remote-workforce business model. We’ve all just gotten a very big nudge to do it sooner.

 

It may not feel like it now, but your future firm will reap the benefits of allowing more flexibility to staff — newer hires in a tight talent market demand flexibility. You’ll also lay the groundwork to augment your staff either with off-premise permanent hires or even short-term gig players during busy season or to add a task-specific set of skills.

 

But to truly make this work for your firm now and in the long-term, there is more to consider than just the physical requirements of remote work. You still need to get and keep people mentally and emotionally tied to your firm, and to have them be committed to doing the great work that you are known for. What will that take?

 

Let’s look at it from a couple of different vantage points with suggestions for each. First, we’ll look at what team members need from their leader in a crisis to ease their panic and stress. Then we’ll look at what you can do for your team to help create an effective remote workforce.

 

Be the leader your team needs

The first way to address the current pandemic crisis — our uncharted territory — is to know that people (your team members inside your firm and your clients outside your walls) naturally look for leadership, because it feels safer to follow someone during confusing times. Those followers have basic requirements of anyone they choose to follow. Those straightforward needs, based on Gallup’s Needs of Followers research, apply to any leader, whether they are leading in a crisis or not. Satisfying those needs is imperative in a crisis.

 

  • Trust. This is a two-way street. Give people the straight information in a transparent fashion as soon and as completely as possible. And give them a way to safely give you information back. Here’s a kicker for your executive team: Trust the individual teams to deliver. Teams that trust each other and the firm leadership are more tightly knit — and that’s a good thing.

 

  • Compassion. Understand what your team members might be feeling. Fear? Stress? Overwork because they are also caring for kids at home? Take some time to know each person well enough to know what they are going through.

 

  • Stability. What can you put in place so that your team does not feel like they are standing on shifting sands? Be specific. Ask them what would help. Let them know that you won’t just drop them on their heads. Most firms have enough compliance work to do, but your clients may very well be in a different place. Though it may seem expeditious for some of them to go immediately to a lay-off solution to address short-term profitability, we should all think about hiring and training costs if team members leave after this passes.

 

  • Hope. Sharing your vision and plan for the future — during and after the crisis — can give your team something to look forward to. This is where you need to be inspiring! What do you stand for? Can you even consider banding together as a firm to help others during the crisis? Step up to this.

 

Ongoing team connections

So those are table stakes for leaders getting their teams calmed down enough to work. But what specifically can you do to make the remote work effective? A few simple hints will help:

 

  • Physical readiness. Make sure that those technical pieces already discussed elsewhere are in place. Does everyone have a laptop? Did you set up a VPN? Do they have access to Wi-Fi? Is there office space at home? Do you have tech support on speed dial and available to team members?

 

  • Expectations. Set up clear expectations for work product. Note we said “product,” not "process." Just because you can’t see your team is no reason to start (or continue!) micro-managing someone’s process. What and when do you both agree your team will deliver?

 

  • Everyday communication. Establish and keep a frequent communication rhythm. One of the very best managers at keeping his team engaged worked remotely with 30 people. When asked what his magic was, he replied that he just talked to everyone every day. Not a long talk, but a check-in: “How was yesterday? Any good news to share? Anything that I can do to help you today? Let me know if you need anything! And great job on (_______), by the way. We noticed and it makes a difference!”

 

  • Team bonding. Make sure there is a way for the team to stay together. Block off time for a remote team lunch. Each person gets their salad/sandwich and gets on a video chat to have lunch together. Or schedule a virtual happy hour on Friday afternoons. We are social creatures, so make sure you bake some of that back into your remote situation.

 

  • Information sharing. Keep your team in the loop. Share information from the firm down to your team and vice-versa, and set it up so the team can share with each other what is happening. If someone needs some help, let it be OK to bring it to the team and ask.

 

  • Establish remote work rules. Consider blocking out time on shared calendars for specific purposes. When you can’t see that someone has their head down, and is deep in the groove of their work, interrupting that person with a phone call or text — no matter how brief — can derail their focus and delay the completion of a task. Instead, encourage your team to block off times when they don’t want to be interrupted. Develop expectations for response times to calls, emails and other messages. Just because everyone is always connected does not mean they need to be on call 24/7.

 

Remote work and keeping people committed to the work and your firm do doesn’t need to be tough, but it does need to be intentional. Remote leadership is different than in-person leadership, and remote management may be even more hands-on than in the office. During a time of crisis like we are in right now, your team members need and want you to step up and help them stay connected to an important part of their life and their identity — work at your firm. And cementing connections with your clients using some of the same approaches will be a bonus.

 

 

 

Small businesses feeling the impact of coronavirus on job and wage growth

By Michael Cohn

 

Small businesses that had been experiencing steady job and wage growth prior to the outbreak of the coronavirus pandemic are seeing that situation change, according to figures from the payroll giant Paychex.

Paychex and IHS Markit’s monthly "Small Business Employment Watch" indicated a decrease in both small-business employment and wage growth. The report is based on data only through March 19, a time when many businesses began to modify operations as a result of the COVID-19 outbreak, so they’re likely to show much steeper drops in employment and wages in next month’s report.

 

The jobs index slowed only 0.11 percent to 98.21 from mid-February to mid-March, and 0.57 percent year-over-year. Hourly earnings growth dipped only to 2.68 percent ($0.72), while weekly earnings growth also dropped to 3.08 percent. On a regional basis, the West had the steepest employment growth decline in March, down 0.19 percent. Weekly hours worked growth in the West also declined considerably in March as the one-month annualized growth rate fell 2.47 percent.

 

Weekly-hours-worked growth also fell sharply in the leisure and hospitality sector in March, with the one-month annualized growth rate falling 6.58 percent. Small-business job growth in leisure and hospitality was also down 0.39 percent, slowing the most among industry sectors during the first quarter of 2020. Overall, Paychex found that the positive earnings growth momentum it saw toward the end of 2019 has now reversed during the first quarter of 2020.

 

“We’re hearing about a lot of [small businesses] closing their doors, but a lot of them are hanging on,” said Frank Fiorille, vice president of risk management, compliance, and data analytics at Paychex. “They do see an end to this.”

 

He believes that many small businesses are aware of the stimulus package passed by Congress last week, known as the CARES Act, which includes provisions for helping small businesses that retain their employees on payroll. equal to 50 percent of the qualified wages paid by the employer with respect to each employee. The CARES Act includes an employee retention tax credit that covers 50 percent of employee wages, up to a cap of $10,000 per employee per year. Small businesses can also get loans of up to $10 million from the Small Business Administration under a new Paycheck Protection Program to cover eight weeks of payroll, and the loans are forgivable as long as the business retains its employees for that period.

 

“The new SBA loan provisions, the payroll protection plan, a lot of clients are very interested in that,” said Doug Bekker, a tax partner at BDO USA. “If they retain their employees, the loan gets forgiven, so it basically becomes a direct cash infusion. But for taxpayers who don’t qualify for that, there is the employee retention tax credit, which was put into place. It allows larger taxpayers who don’t qualify for the SBA loan to potentially get a credit of up to $5,000 covering 50 percent of employee wages. It can cover $10,000 of employee wages, and the government will chip in half of that for employees that you are retaining, but aren’t providing services. The thought there being that if you are shut down — and that is one of the requirements: you have to be shut down by either government order or your revenue has to have dropped by a considerable amount — if that’s happening and you’re retaining employees who are idle but you’re continuing to pay them, you can get this credit. Obviously that can be a nice cash infusion for companies in that situation.”

 

Fiorille pointed to small businesses trying to be creative by furloughing a few workers while keeping the business up and running, at least for now. He noted that businesses were in a strong position before the coronavirus hit.

 

Last year, the biggest issue for many small businesses was finding enough qualified employees to do the work, and many of them remain hesitant to let their workers go. Nevertheless, the U.S. Department of Labor reported last week that 3.3 million workers applied for unemployment benefits in the previous week, and economists are predicting this week’s report will show that 3.5 million jobless claims were filed last week.

 

“I would anticipate that last week and this week are probably going to be tough weeks,” said Fiorille. “We definitely are seeing a deterioration.”

 

He advises accountants to tell their small business clients to stay up to date with the latest government programs available to help them deal with the crisis. Paychex is working with the American Institute of CPAs and several other payroll providers in trying to convince the Treasury and the IRS to use their commercial payroll programs to get the money out to small businesses faster, which helped in the aftermath of Hurricane Katrina (see our story). However, so far, the Treasury and the IRS are still planning to use the government’s own payroll facilities.

 

“I do think the Treasury is really trying to move fast here,” said Fiorille. “They recognize they’ve got to make it as simple and as easy as possible, with very low documentation. They obviously do have to control for the fraud, but I think they are really trying to get money in their hands very quickly here.”

 

 

 

Trump says he wants to restore tax deductions for business meals

By Josh Wingrove

 

President Donald Trump said he wants to restore corporate tax deductions for business meals as restaurants reel from the impact of the coronavirus outbreak.

 

The president said Sunday he’d spoken with celebrity restaurateurs including Wolfgang Puck, Daniel Boulud and Jean-Georges Vongerichten on the subject.

 

Restaurants nationwide have been forced to close or restrict their business to take-out and delivery because of social distancing measures in place to curb the outbreak.

 

Trump said he’s asked Treasury Secretary Steven Mnuchin and Labor Secretary Eugene Scalia “to immediately start looking into the restoring of the deductability of meals and entertainment costs for corporations.

 

Trump’s 2017 tax law eliminated deductions for most business entertainment expenses and limited deductions firms could take for providing meals to their employees, while slashing the top U.S. corporate tax rate to 21 percent.

 

Among the businesses that could benefit from such a move would be Trump’s family operation, which includes hotels, golf clubs and resorts, often with high-end restaurants on site.

 

Vongerichten operates his eponymous flagship restaurant in the Trump International Hotel and Tower in New York.

 

 

 

IRS employees ordered to work from home to avoid coronavirus

By Michael Cohn

 

The Internal Revenue Service has asked all of its employees to work from home as a result of the coronavirus pandemic.

 

In an email to staff last Friday, the IRS told all of its staff to begin working from home this week.

 

“As a result of recent OPM [U.S. Office of Personnel Management] guidance, starting Monday, March 30, 2020, the IRS is directing all employees, including employees who are currently not teleworking but whose work is portable or can be adapted to work off-site, to evacuate the work site and work from home (or an alternate location) — including employees who are not currently on a telework agreement,” said the memo. “All employees affected by this directive must take their equipment home to be prepared to work from home.”

 

The memo then directed employees to refer to an If/Then chart that shows which employees can be directed to evacuate and the talking points for managers to refer to so they can answer their employees’ questions about this matter.

 

“Please reiterate with your employees that if they are specifically quarantined, have any flu-like symptoms or are otherwise ill, they should not come into the office for their own safety and the safety of others,” said the memo.

 

Last week, the IRS closed its Practitioner Priority Service for tax professionals (see our story). It also described the steps on its website it is taking to deal with the COVID-19 pandemic. It acknowledged that some of its operations are being curtailed during this period, but it is continuing with mission-critical functions such as accepting tax returns and sending refunds.

 

"As a federal agency vital to the overall operations of our country, we ask for your personal support, your understanding — and your patience," IRS Commissioner Chuck Rettig said in a statement. "I'm incredibly proud of our employees as we navigate through numerous different challenges in this very rapidly changing environment. Working closely with our partners in the nation's tax community, we will do everything in our power to help."

 

The IRS has been tasked with sending out the stimulus payments to taxpayers that were approved last week in Congress. Taxpayers are expected to begin receiving payments of at least $1,200 ($2,400 for couples), plus an additional $500 per child. The Treasury is promising to begin making the "economic impact payments" within the next three weeks, but they will go out faster to taxpayers who have been set up for direct deposit of their tax refunds on either their 2018 or 2019 tax returns. Checks sent by mail will take longer to process.

 

Last week, the National Treasury Employees Union, which represents IRS staff, urged all federal agencies to close buildings with 50 or more employees.

 

"The half-measures taken so far are not enough because too many government workers are still working in full or nearly full offices," NTEU national president Tony Reardon said in a statement last week. "Closing buildings halts the large gatherings, just as CDC recommends, allows telework to continue and provides weather and safety leave — as opposed to personal leave — for those who have jobs that are not eligible for telework. This is a chance for the government to lead by strictly following the advice of its own public health officials. State and local officials and private companies are all ramping down, and the federal government — where possible — should do the same."

 

 

 

IRS accepting email and digital signatures on tax documents due to coronavirus

By Michael Cohn

 

The Internal Revenue Service is now accepting email and digital signatures on tax documents to make it easier for tax professionals and taxpayers to communicate with the agency during the novel coronavirus pandemic.

The IRS said Monday that, effective immediately, it would “begin temporarily accepting images of signatures (scanned or photographed) and digital signatures on documents related to the determination or collection of tax liability.”

 

In addition, the IRS is letting its employees accept documents through email, transmitting documents to taxpayers using SecureZip or other “established secure messaging systems.”

 

“The IRS is continuing to monitor methods to lessen the burden on taxpayers and professionals during this period,” said Sunita Lough, IRS deputy commissioner for services and enforcement, in a statement Monday. “We greatly appreciate the patience, support and valuable comments we continue to receive from the tax professional community as we move forward.”

 

The effort, which was also described in an internal IRS memo, comes in response to the coronavirus pandemic, and aims to help the IRS perform some of its primary duties while its own employees, as well as taxpayers and their tax professional representatives, are working from remote locations outside their offices. On Monday, IRS employees were directed to start working remotely (see our story).

 

Concerning emails, the IRS said the taxpayer or their representative needs to include a statement, either in the form of an attached cover letter or within the body of the email, saying to the effect: “The attached [name of document] includes [name of taxpayer]’s valid signature and the taxpayer intends to transmit the attached document to the IRS.” The choice to transmit documents electronically is solely up to the taxpayer.

 

The limited categories of documents included within the scope of the digital effort include extensions of statute of limitations on assessment or collection, waivers of statutory notices of deficiency and consents to assessment, agreements to specific tax matters or tax liabilities (closing agreements), and any other statement or form that needs the signature of a taxpayer or representative and is traditionally collected by IRS personnel outside of standard filing procedures (such as a case-specific Power of Attorney).

 

The IRS said it’s continuing to review the standards for e-signing other kinds of documents, and it’s asking for suggestions and comments while it looks into additional efforts to lower the burden on taxpayers and tax professionals during this period.

 

 

 

 

The fight against sales taxes on professional services goes on

By Roger Russell

 

While West Virginia was the first state to enact a sales tax in 1921, the majority of states instituted sales taxes in the 1930s. At the time, tangible personal property comprised the sales tax base, and only later did some states add services. As the tax base of retail sales in the economy has shrunk while professional services has grown, a number of states have attempted to implement a sales tax on professional services.

 

Transactions involving professional services are different from over-the-counter sales. Yet that hasn’t stopped a number of states from imposing, or seeking to impose, sales taxes on these services, including services by CPAs and accountants. “Currently, three states — Hawaii, New Mexico and South Dakota — tax all services,” observed Scott Peterson, vice president of U.S. tax policy and government affairs at Avalara. “Other states tax some services, but not all services. Iowa, Connecticut and West Virginia tax a lot of services, but they don’t tax accountants and lawyers. California and Maryland have been attempting to do this.”

 

“For a business like dry cleaning and car repair services, it’s not too difficult to charge sales tax. But if you’re providing services remotely, it’s a different animal,” he added. “Professional services are very often not over the counter, and generate more complex issues, such as where is the point of the transaction sourced?”

 

New fronts

Recently, CPAs in California and Maryland have been wrestling with the possibility that their services would be subject to sales tax. Maryland CPAs (and other professionals there) recently won, for the time being, their battle to stave off a professional services tax, while California is still mustering troops for the skirmish ahead.

 

The Maryland proposal, House Bill 1628, was geared to attract taxpayers by dropping the existing sales tax from 6 percent to 5 percent, while expanding it to apply to professional services, including CPAs, attorneys, architects, real estate agents and even landscapers. However, largely as a result of a campaign waged by Maryland CPAs and other professions, a House subcommittee unanimously voted down the proposal.

 

“This year’s battle to defeat sales tax on professional services was one of the most intense in my 23 years at the Maryland Association of CPAs,” said Tom Hood, CEO of the association. “The secret to our success came from our proactive grassroots approach that involved the record number of CPAs at our CPA Day in Annapolis, our support from CPA firms all across Maryland with 100 percent membership, and the ultimate grassroots program we have that matches every member to their legislative districts and representatives.”

 

“It was an epic battle to defeat bad legislation,” he said. “But it’s not the first time the issue has been before the legislature. It came up in the 2007-08 legislative session, and it’s returned every couple of years since then. But it was different this year because of the Kirwan Commission recommendations.”

 

The Kriwan Commission, officially named the Commission on Innovation and Excellence in Education, made extensive recommendations for improving Maryland’s public schools, which would cost billions of dollars over a 10-year period. “It’s recommendations are not mandatory, but the legislature is really keen to get it going,” Hood said. “They think they have funding for the first three years, but will need additional funding down the road to meet the goals.”

 

Despite the unanimous, bipartisan vote to kill the measure, Hood anticipates further attempts to place a sales tax on professional services.”We will need to keep our guard up,” he said. “A big argument the opposition makes is that this new service-based economy means that the revenue base has shifted from manufacturing to services. Therefore, they argue that they have to tax services because that’s where a growing part of the economy is headed.”
 

On the other coast

The battleground now shifts to California, where California Society of CPAs CEO Anthony Pugliese is marshalling his troops in opposition to pending Senate Bill 522, the state’s latest attempt to tax professional services.

 

“A tax on professional services will be an issue whenever there’s a revenue shortfall,” Pugliese predicted. “It’s an evergreen topic — they’ll be coming back after it year after year. The state characterizes it as a way to smooth out revenue and create less volatility. Our concern with that logic is that it’s not well-vetted in terms of its effect on the economy, in particular the end consumer. Everyone will have to pay for this — it’s another impediment to being successful for a business in California.”

 

Not only would a professional services tax have a negative effect on an already challenged business climate, it would place much of the tax burden on consumers across the state, Pugliese observed. He cited a recent study that found that a 5 percent sales tax would translate to an effective tax rate of 6.1 percent to 8.1 percent to the consumer. “Think of all the services that go into the development of the products and services that a consumer would purchase,” he said, noting that the compounding effect of a sales tax on professional services would create a pyramid where the same product is taxed multiple times as it moves to the end consumer.

 

For example, Pugliese estimated that the taxes on architecture, engineering, legal and accounting services required by a homebuilder to construct a housing development would add more than $16,500 to the price of a new home.

 

One of the consequences of such a tax would be the loss of clients to other states as clients seek professional services on a remote basis, Pugliese indicated. “It would discourage the use of professionals in California,” he said. “If clients migrated their service needs to Nevada, Arizona or Oregon, it would hurt the consumer as well as the CPA.”

 

Pugliese said that CalCPA has allied with other professional groups to educate policymakers on the negative impact of a services tax. Like MACPA, CalCPA used its CPA Day to speak to state legislators and government officials.

 

“We explained that a professional services tax would not just add something that would increase revenue, but it would discourage the use of other things that create revenue. Simply the shift in the use of services to another state means that California would not be collecting as much payroll tax — it creates a shortfall somewhere else.”

 

 

 

Tax Strategy: New health reimbursement arrangements for 2020

By Mark A. Luscombe

 

Health reimbursement arrangements are arrangements in which an employer reimburses employees for medical costs incurred by the employee or individual health insurance premiums for health insurance procured by the employee. When the Patient Protection and Affordable Care Act, or ACA, was enacted in 2010, HRAs were viewed as violating the ACA by putting impermissible limits on health care coverage. To help preserve HRAs, the 21st Century Cures Act, enacted on Dec. 13, 2016, created new qualified small employer health reimbursement arrangements to permit small employers to continue to offer HRAs if certain conditions were met. Now, based on regulations finalized on June 20, 2019, by the Internal Revenue Service, the Department of Labor, and the Department of Health and Human Services, starting in 2020 two new forms of HRAs may be offered to employees: individual coverage HRAs and excepted benefit HRAs.

 

QSEHRAs

Qualified small employer health reimbursement arrangements are available only to employers that are not applicable large employers under the ACA, i.e., it applies to employers having fewer than an average of 50 full-time or full-time equivalent employees for the prior year. The employer must not otherwise offer a group health plan. The QSEHRA must be funded exclusively with employer contributions, with none from the employee.

 

 

The QSEHRA must be offered to all full-time employees who have completed at least 90 days of service and are at least 25 years of age, with certain exclusions. There are annual limits on QSEHRA contributions, adjusted for inflation. For 2019, the limits were $5,150 for single employees, and $10,450 for families; for 2020, the limits are $5,250 for single employees, and $10,600 for families. For the reimbursements not to be taxable to the employee, the employee must provide proof that the employee and any included family members have obtained minimum essential coverage (as defined in the ACA) from a health insurance exchange or other third-party provider. The employer must provide a notice to employees that includes the amount of the employee’s benefit, a statement that the benefit must be disclosed to any health insurance exchange if the employee is claiming advance premium tax credits, and a warning of possible tax penalties if the employee and any applicable family members do not have minimum essential coverage.

 

Individual coverage HRAs

An individual coverage HRA reimburses employees for their medical care expenses, and in some cases family member expenses, up to a maximum dollar amount that the employer makes available each year. There is no minimum or maximum amount. It is available to employers of any size, and employers may offer a group health plan or ICHRAs to different classes of employees. The employer may allow unused amounts to roll over to the next year. Employees must enroll in individual health insurance (or Medicare) for each month covered by the ICHRA. The coverage can be through an exchange or offered outside the exchange.

 

Employers who offer an ICHRA must offer it on the same terms to all individuals within a class of employees, except that the amounts offered may be increased for older workers and for workers with more dependents. Classes of employees may include, among other categories, full-time employees, part-time employees, employees working in the same geographic location, seasonal employees, employees covered by a particular collective bargaining unit, salaried employees, hourly workers, and temporary employees of staffing firms. A minimum class size rule applies if the employer offers a traditional group health plan to some employees and an ICHRA to other employees.

 

The employer must provide a notice to eligible participants regarding the ICHRA and its interaction with the premium tax credit. The employer must also have reasonable procedures in place to substantiate that participating employees and their families are enrolled in individual health insurance or Medicare.

 

Excepted benefit HRAs

Excepted benefit HRAs work something like flexible spending accounts without the same dollar limits or rollover restrictions. Employers would offer them in addition to a traditional group health plan to help employees pay the cost of co-pays, deductibles or non-covered expenses. They must be uniformly available to all similarly situated individuals. However, employees could use an EBHRA even if they choose not to enroll in the group plan, e.g., if the employee is part of a spouse’s group plan instead or if the employee’s share of the group plan expenses is not affordable.

 

The annual EBHRA contribution limit for 2020 is $1,800, adjusted for inflation in future years. The EBHRA cannot be used to reimburse individual health insurance premiums, group health plan premiums (other than COBRA), or Medicare premiums. They can be used for dental and vision coverage and for short-term, limited-duration insurance.

 

Summary

Employers were able to start offering ICHRAs and EBHRAs on Jan. 1, 2020. If employers did not take the necessary steps prior to Jan. 1, 2020, they can focus on getting them in place for 2021. Employer contributions to ICHRAs and EBHRAs are deductible to the employer and not taxable to the employee.

 

ICHRAs and EBHRAs are part of the Trump administration’s plan to try to offer additional insurance options outside of the ACA. Although there are some procedures in place to try to reduce concerns about adverse selection with the use of these plans, some commentators remain concerned that such plans will still tend to leave more of the most health-at-risk individuals in the exchange plans. Health care remains in a state of flux with the constitutionality of the ACA before the Supreme Court once again, the individual mandate under the ACA repealed starting in 2019, and the 2020 fall elections.

 

 

 

Major changes in RMDs and retirement contributions in $2T stimulus plan

By Ed Slott

 

In addition to the catastrophic health situation caused by the new coronavirus, many of your clients are likely hurting financially, especially in their retirement accounts. Here’s how you can help them take advantage of several new relief provisions found in the $2 trillion CARES Act.

 

Extended IRA contribution deadline
 

As the Treasury has extended the tax return filing date to July 15, 2020, from April 15, 2020, the date for making 2019 IRA and Roth IRA contributions for 2019 is extended to the revised date.

 

Now is a good time for advisors to ask clients whether they plan to take advantage of this extension. Because clients’ financial situations may have taken a turn for the worst due to a job loss or business downturn, even those who make IRA contributions each year might want to hold off and take advantage of the extra time to contribute.

 

Advisors should also be careful to monitor any 2019 IRA contributions made after April 15, 2020. Custodians may automatically code 2019 IRA contributions as 2020 contributions if made after April 15. Make sure these checks state that they are for 2019 and then follow up with the custodians to confirm that the contributions are posted correctly.

 

In addition to IRAs, the extended deadline applies to contributions for the 2019 Health Savings Account, Archer Medical Savings Account and Coverdell Education Savings Account.

 

RMDs waived for 2020
 

Included in the massive bill are several relief provisions for retirement accounts. The one that will affect most retirees is the waiver of RMDs for 2020.

 

This will be a huge help because 2020 RMDs would generally be based on the substantially higher account values on Dec. 31, 2019. If not for this relief, IRA owners would be forced to pay tax on a much higher percentage of their IRA balance. Eliminating the RMD for 2020 can help clients reduce their 2020 tax bill. However, this won’t help those clients who need the funds and must take withdrawals anyhow.

 

The RMD waiver also applies to 2019 RMDs that are normally due by April 1. In another bit of positive news, the waiver applies to IRA owners who turned 70 ½ in 2019. The Secure Act had increased the RMD age to 72 for those who turn 70 ½ in 2020 or later. Those who turned age 70 ½ in 2019 were still required to take their first RMD by April 1, 2020. Not anymore.

 

When clients begin taking RMDs, they have an option of taking all or part of the first year distribution in the year they turned 70 ½ (under pre-Secure Act rules) or deferring any part of that RMD until April 1 of the following year. If they wait until the following year, they must take their first two RMDs in the following year, resulting in a bunching of RMD income in the same year and an increased tax bill.

 

To alleviate this situation, we have often advised clients to take their first RMD in their 70 ½ year so they can spread the income from their first two RMDs over two tax years. Unfortunately, if they took this advice last year, they won’t benefit from the RMD waiver for their first RMD, as they already took that in 2019. Their 2020 RMD, though, is waived. Clients who didn’t listen to us and deferred their first RMD to 2020 may now be able to have their first two RMDs waived.

 

IRA beneficiaries
 

A less-obvious group that can benefit from this waiver are IRA beneficiaries who inherited in 2015 or later and who are subject to the five-year payout rule. Generally, this only applies to non-designated beneficiaries who inherited before the deceased IRA owner reached his required beginning date (April 1 following the age 70 ½ year).

 

These beneficiaries may have inherited through a will or were a beneficiary of a trust that did not qualify as a designated beneficiary. For example, for IRAs inherited in 2015, under the five-year rule, any balance remaining in the inherited IRA would normally have to be withdrawn as the RMD for 2020. Beneficiaries now have one more year, until Dec. 31, 2021, to empty the account. For beneficiaries who inherited in 2015, the five-year rule becomes a six-year rule.

Relief for retirement accounts-Ed Slott

 

Undoing RMDs already taken?
 

One question is whether 2019 or 2020 RMDs already taken in 2020 can be put back in the IRA so the tax bill is eliminated. The relief package does not include any repayment provisions, so the IRS may have to issue guidance on this issue. There may be a way for some clients to undo 2019 or 2020 RMDs already taken this year, but only under these three conditions:

 

  1. Rollovers are not an RMD. An RMD cannot be rolled over. However, because the new law waives RMDs for 2020, then, technically, an RMD already taken is not an RMD anymore. This means it should be eligible to be rolled back into the IRA, thereby eliminating the tax bill. It’s likely the IRS will rule these distributions are not RMDs and are eligible to be rolled over, but only if they pass the next two tests.

 

  1. The 60-day rule must be followed. To be eligible for the funds to be rolled back to an IRA, the rollover must occur within 60 days of receipt of the funds. Those who took RMDs very early in the year may have already missed this window, but many clients may still have this opportunity available to them if they pass the third test.

 

  1. Clients must adhere to the once-per year IRA rollover rule. Only one IRA to IRA or Roth IRA to Roth IRA can be done per year, and that year is 365 days, not a calendar year. If another distribution is taken during the 12 months prior to receipt of the RMD that was already rolled over, the rollover option is off the table for the now unnecessary RMD distribution, even if the other two tests are passed.

 

Although the RMD waiver applies to inherited IRAs, the ability to undo RMDs already taken would not be available for non-spouse IRA beneficiaries, as they cannot do 60-day rollovers.

 

If all or part of the RMD was transferred to a charity as a qualified charitable distribution, then there’s no problem, because that amount is excluded from income anyway.

 

Once an IRA owner reaches age 70 ½, they can still do a QCD whether or not they are subject to RMDs.

 

Additional relief provisions
 

The new act waives the 10% early distribution penalty on up to $100,000 of 2020 distributions from IRAs and company plans for “affected individuals.” The tax would be due, but could be spread evenly over three years, and the funds could be repaid over the three-year period.

 

While the 10% early distribution penalty is waived, the amount withdrawn is still subject to tax, and it removes funds that may be needed for retirement. Thus, this option should be used only as a last resort.

 

We’ve seen this provision in previous disaster relief bills, but that relief only applied to people affected by a particular hurricane, wildfire or other type of disaster. Here, given the scope of the current pandemic, “affected individuals” could include a great many people so plans should brace for an onslaught of hardship requests.

 

For those over age 59 ½, the 10% early distribution penalty is not an issue, but for those facing financial hardship, the ability to take a distribution now and spread the taxes over three years may be helpful.

 

If their situation improves, the opportunity to repay the funds during the three-year period could be a useful way for them to rebuild otherwise lost retirement savings.

 

Increasing plan loans
 

Finally, the new law affects company plan loans that may be taken by affected individuals.

First, the new law doubles the maximum amount of plan loans to the lesser of $100,000 (reduced by other outstanding loans) or 100% of the account balance.

 

This rule applies to loans that are taken within 180 days from the bill’s date of enactment. Second, any loan repayments normally due between date of enactment and Dec. 31, 2020, could be suspended for one year.

 

Advisors must be ready to answer lots of questions about these new provisions as they will impact virtually all clients. The pandemic and its economic fallout will result in many of your clients needing you more than they ever have.

 

 

 

Time out: How the deadline postponement is affecting tax preparers

By Jeff Stimpson

 

The pandemic has officially pushed filing day for the federal government and a growing list of states into the summer. As it’s done to many other aspects of society, the outbreak has also upended the definition of “reprieve” for preparers.

 

Is it a real breather? And what are clients saying?

 

“Breather? Ha!” said John Dundon, an Enrolled Agent and president of Taxpayer Advocacy Services, in Englewood, Colorado. “We’re pulling hair out over here and can only imagine our time and attention in highest demand for the unforeseeable future. Everyone is so confused and there is so much disinformation floating around.”

 

“The official pushback of federal day came after so much drama!” said Manasa Nadig, an EA and owner at MN Tax and Business Services and a partner at Harris Nadig, in Canton, Michigan. “Between the time the government had tweeted out the news and the time the IRS confirmed it, I had been flooded with phone calls, text messages and emails.”

 

“Since I’ve been moving my office to home the last few days, it will help, but since I would have filed extensions for my clients anyway (and still plan on doing so to make sure Oct. 15 is still in play) plus will get done clients with tax liabilities first anyway, it won’t change my season significantly one way or the other,” said Brian Stoner, a CPA in Burbank, California.

 

“It is helping a little bit,” said Morris Armstrong, an EA and registered investment advisor at Armstrong Financial Strategies in Cheshire, Connecticut. “Frankly, the delay of the payment date may be more beneficial than the actual delay of filing date.”

 

“The postponement may have helped regarding completing everything by April 15,” said Twila Midwood, an EA at Advanced Tax Centre, in Rockledge, Florida, “but extra time has now resulted [in] fielding phone calls and emails, sending client newsletters regarding the postponement of tax payments followed by yet another newsletter regarding postponement of the filing date and working with those who had or have a balance due to accommodate for the July 15 date. All of this at non-billable time!”

 

Sheltering in place

Tax preparers are both affected and not affected by the isolation orders spreading nationwide. CPA Larry Pon in Redwood City, California, has been sheltering in place for several days, though of course prep is considered an essential business.

 

“We’re in the same category as marijuana dispensaries,” Pon said. “Good to know I am in an essential business. Accordingly, I’m sheltered in place here in my office. My business is not set up to work from home — I intentionally did that to separate work from home.”

 

Pon has switched face-to-face appointments to the phone. “We’re telling clients to send their information to us,” he said, adding that they can drop material personally but without contact, use a shipping service, email or fax or upload to secure sites. “I use FileShare and Verifyle. I’m not comfortable with Dropbox or Google Docs since I get a lot of phishing emails from them. If I need to share my computer screen, I use Zoom.”

 

“With most taxpayers quarantined or under self-quarantine this last week, many complicated clients have found themselves also working on their tax stuff, a.k.a. calling [us] with questions,” said Dundon in Colorado. “Being bombarded with complicated tax questions while in the mindset of efficient, mistake-free processing for our most favored early birds has been extraordinarily challenging.”

 

At the time of his response, the home state of EA Joel Grandon in Marion, Iowa, reported fewer than 70 cases of coronavirus. But “with multiple states issuing a self-quarantine order and many others rumored to be doing so, my clients are anxious to get their returns picked up,” he said. “Many of my clients are appreciative of the extended payment date and our snowbird clients are thankful with the extended filing date that they can wait until they come home in May to bring their documents to me. Many of them are nervous about mailing them when they are gone, and that demographic doesn’t exactly embrace the technology of portals.”

 

“A few [clients] have expressed relief in knowing that they don’t have to rush to get their tax information to their preparer. Most have already gotten their info in and are expecting their 2019 returns to be prepared by April 15,” said Bruce Primeau, a CPA at Summit Wealth Advocates, in Prior Lake, Minnesota. “It presents an opportunity for our clients who have balances due to hold onto their money for a bit longer to earn more interest income. That said, we always encourage clients to get their tax information to their preparer as soon as possible. It gets pretty frustrating when clients wait to deliver their information until just before the filing deadline and then expect a very quick turnaround.”

 

“Clients are happy,” Midwood added. “Those who [always] try to wait until the last minute will still wait until the last minute.”

 

“The most difficult part for me as an employer may be helping my administrative staff see the urgency of completing the season as close to April 15 as possible,” Grandon added.

 

When and if

“The IRS was not clear as to when the 4868 due date was,” said Bill Nemeth, president and education chair of the Georgia Association of Enrolled Agents, who added that his software provider has found out that the last day to file a 4868 extension is July 15 to extend the due date to Oct. 15. Filing a federal 4868 also automatically extends his state’s deadline to Oct. 15, Nemeth added.

 

“I’m filing 4868 in all required cases by April 15 because I don’t want to spend hours on the phone with the IRS down the road when they tell me their interpretation of these rules,” he said.

 

Other preparers have wondered when and if postponements are coming on other federal returns, such as the 8938, 3520, 3520A, 5471, 8865 and 8858. Questions also remain on quarterly estimated payments.

 

Advice on how clients can use the extra time varies. Pon, for instance, is letting clients choose. “One client wants to put off his payment to July 15 and invest the money in a U.S. Treasury fund,” he said. “I certainly do not recommend using this money to play this crazy stock market.”

 

And the preparers themselves? “I’m personally still paying my taxes on April 15 and June 15, since I may forget by July,” Pon said. “I’m expecting to see the number of cases going up before it goes down. I’m also looking forward to tuning on the news and this story not being the first story.”

 

 

 

Employers can use payroll tax credits for paid leave for coronavirus

By Michael Cohn

 

The Treasury Department, the Internal Revenue Service and the Labor Department said small and midsized employers can start taking advantage of two new refundable payroll tax credits aimed at immediately reimbursing them, dollar for dollar, for the cost of providing coronavirus-related leave to their employees.

The relief was included as part of the Families First Coronavirus Response Act that was signed into law last week.

 

U.S. businesses with fewer than 500 employees can use the funds to provide employees with paid leave, either for the employee’s own health care needs or to care for their family members. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and Dec. 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.

 

For COVID-19-related reasons, employees will be able to receive up to 80 hours of paid sick leave and expanded paid child care leave when employees’ children’s schools are closed or child care providers are unavailable. Health insurance costs are included in the credit. Employers won’t face any payroll tax liability. Employers will receive 100 percent reimbursement for paid leave.

 

To take advantage of the paid leave credits, businesses can keep and access funds they would otherwise pay to the IRS in payroll taxes. If those amounts aren’t enough to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.

 

For an employee who’s unable to work because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis, eligible employers can receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.

 

For an employee who’s caring for someone with coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to coronavirus, eligible employers can claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

 

Along with the sick leave credit, for an employee who’s unable to work because of a need to care for a child, eligible employers can receive a refundable child care leave credit. The credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

 

President Trump had initially favored a payroll tax cut for employees and employers, but that sparked criticism that the money would deplete the Social Security Trust Fund and Medicare funds, and the benefits would not be felt so soon. The administration and Senate Republicans have instead pivoted to the idea of giving out $1,200 stimulus checks to individuals, $2,400 to married couples and an extra $500 for each child in the family (see our story). The amount of the so-called “recovery checks” would phase out for higher-income taxpayers. The plan would also delay the payment of employer payroll taxes. However, Republicans and Democrats in the Senate remain divided over several aspects of the $2 trillion package, and it failed to advance in the Senate on Sunday.

 

Distribution issues

When the stimulus package is ultimately passed, it will be up to the Treasury and the IRS to distribute the money. But that could take months, given the limited staff, budget cuts and antiquated technology systems at the IRS and experience from past efforts to distribute stimulus payments and tax rebate checks. According to Reuters, it took more than six weeks to distribute tax rebate checks in 2001 and almost three months to distribute stimulus payments in 2008.

 

Tax experts saw some advantages and disadvantages to the initial payroll tax cut concept.

 

Tim Speiss, co-leader of the Private Wealth Group at Top 100 Firm EisnerAmper, pointed to the payroll tax cuts that the Obama administration put in place for two years in response to the financial crisis, temporarily reducing both taxes from 6.2 percent to 4.2 percent. Under the Trump administration’s original proposal, the 6.2 percent payroll tax would go down to zero percent for the rest of the year.

 

“That could create a fair amount of savings,” said Speiss. “At 12 percent, you’re looking at something over $14,000 in potential tax abatements that an individual could use, spend and put back into the economy. Half of that amount would also allow a corporation to do the same thing. The real intent is to put money into the economy.”

 

Roger Brown, former special counsel in the IRS’s national office and head of tax and regulatory affairs at the blockchain technology company Lukka, doesn’t think a payroll tax cut would be as effective as other stimulus measures.

 

“I do think there are other things that Congress could do to help the middle class to deal with this economic downfall,” he recently told Accounting Today. “What was very unpopular in many states was limiting the state and local tax deduction to $10,000. For many people that was a tax increase at the federal level on people in the coastal states. Next, the R&D credits that are available could be partially targeted to the coronavirus. We should lift those caps, and rather than a simple tax cut, why not increase the tax credit that people could take? A payroll tax cut isn’t the only mechanism. You need to look at other liquidity raisers. They should allow people to take money out of 529 plans without penalty for the current year and allow for increased contributions to IRAs.”

 

One of the proposals in the Republican plan for the current stimulus package currently under consideration is waiving the 10 percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes.

 

 

 

I applied for SBA COVID-19 relief — here's how it went

By Melissa Diaz

 

High Rock Accounting, the firm where I serve as CFO, regularly assists clients with cash flow planning, strategy and management. We give people advice all day long on how to maintain proper cash flow levels when faced with growth, unexpected business events and (of course) economic downturns. But what we don’t often stop to ponder is: Who does High Rock turn to when we are faced with these same challenges?

 

At High Rock, we pride ourselves on planning well into the future as it relates to our cash flow needs. It’s even one of our specialties as a firm! However, in full disclosure, this economic downturn related to COVID-19 simply caught us off guard in a way few external factors ever do. And while our internal planning allows us to weather a storm like this in the short term, none of us really knows how long or how dramatic the economic impacts of this pandemic may be. And because High Rock is in the business of client service, this means we are impacted by uncertainty when we look at our operations internally and also when we look toward our clients’ operations. That uncertainty also translates to prospective clients who are cautiously observing the same economic outlook as we are.

 

As a result, High Rock determined the best course of action given the current state of the economy was to apply for the SBA (Small Business Association) Disaster Relief Loan Program. We documented our experience to share with others who may find themselves in similar situations. Please read below to learn how the process went for us.

 

1. The waiting game

The earliest date that small businesses were able to start submitting applications for disaster relief related to the COVID-19 pandemic was March 12, 2020. However, as of 8:00 a.m. (PT) on Monday, March 19, the COVID-19 disaster relief funds had only been released for a select few counties in Arizona (our home state). After checking the site regularly on the 19th, I was finally able to apply around 3:00 p.m. However, this is not where the waiting game ended.

 

Due to the high volume of traffic hitting the site, each page generally took between 30-45 seconds to load (some took more than a minute). That may not sound like a lot at face value, but there are quite a few screens you necessarily have to click through as the application progresses. Also, I got quite a few error messages for pages that wouldn’t load when I first tried to access them. Navigating backward or reloading the page generally fixed these issues, but this also took about 30-45 seconds each time. All in all, what likely would have taken me about 30-45 minutes to complete at normal browsing speed ended up taking a full two hours.

 

After about 5:00 p.m. PT on the 19th, the browsing speed did increase. As of early morning on March 22, the site appeared to be moving at what I would consider a normal browsing speed. This may indicate that the site is working more efficiently now, or just that business owners are not applying at the same volume outside of business hours. Hopefully, it is the former. In any case, be sure to set aside a good amount of time to complete the application. While there is an option to save your progress and access the site later, this application really can (and should) be done in one sitting.

 

As a side note related to technology: I had to use two different browsers at one point during the application. I’ll discuss more below, but the tax form authorization required can be provided via e-signature by the business owner who is filling out the application. However, when I tried the e-signature option on Google Chrome, it did not work. I had to reload my application on Firefox to complete this portion.
 

2. Getting registered

The first step of the application is to register on the SBA Disaster Loan website (https://www.sba.gov/funding-programs/disaster-assistance).

 

Be sure to first check the eligible areas, as you will not be able to proceed with the application in an area where the COVID-19 disaster relief program has not been approved.

 

Once you’ve confirmed you are in a location eligible for assistance, you need to register your business. This is a very simple process whereby you provide some personal information (such as date of birth and social security number) and your business address.

 

Be sure that the individual registering for the application has proper authority within your organization to sign documents, such as tax transcript authorizations.

After registration is complete, you can begin your application.

 

3. The application

As a CPA who has had to deal with many state and federal governmental bodies over the years, the SBA made the online application process pretty straightforward. Aside from the lag in browsing speed, the deliverables they request are relatively light from a due diligence perspective, and should be easy to provide by companies who maintain proper records. It should be noted that this same application can be submitted by mail, or in person at an SBA office. I did not attempt either mail or in-person applications, but the documentation needed should be the same.

 

To complete the application, you will need:

  • Completed SBA Form 5 (U.S. Small Business Administration Disaster Business Loan Application). This form provides basic information about the business, including address, organizational structure (LLC, LLP, C-Corp, etc.) and ownership structure. Make sure to include all owners on this form, as they will also need to provide a signed tax transcript authorization form as another part of the application. You do not want your application held up unnecessarily because you did not provide all the proper owner authorizations.
  • Owner’s personal financial statement. Each owner included on SBA Form 5 will need to provide a personal financial statement. This statement requires owners to fill out personal information regarding their asset holdings (cash, personal property, personal real estate, etc.) and liabilities (accounts payable, mortgage, car note, etc.). Be advised that this form can be time consuming if you have substantial real estate holdings, investments, or complex liabilities.
  • Signed IRS form 4506-T (request for transcript of tax return). This form is needed for both the business you are applying for and owners included on the SBA Form 5. It authorizes the SBA to request a transcript of two years of tax returns (2018 and 2017). The individual who is filling out the application on behalf of the business can provide an electronic signature on this form. However, it is important that the individual filling out the application has proper signing authority so this electronic signature is valid. The authorization forms for those owners not filling out the application can be provided via signed PDF.
  • Federal income tax return – business. A copy of the most recent business tax return is required for the application. My company provided 2018, as we have not yet prepared 2019. If you do not have a 2018 tax return available, you will need to provide the most recent year that is available and provide an explanation as to why 2018 is not. Keep this in mind if you are a business who has been traditionally less attentive to tax filings.
  • Completion of truthful information certification. This is an acknowledgement via e-signature from the individual filling out the application that all information represented is accurate to the best of their knowledge. This form is yet another reason it is important that an individual with proper authority and oversight within your organization is filling out the application. You do not want someone who doesn’t have a full picture of the company or all the relevant information filling out this certification. Keep in mind that you are making legal representations to the federal government. Your company may face consequences and fines related to fraudulent or inaccurate reporting of financial position.

 

4. What’s next?

I wish I had a good answer for this question. Since I just submitted the application on March 19 after business hours, the only communication I’ve received is an email acknowledgement that my application has been filed. I’ve seen no update to my application status online. There is no indication through the application process as to how much money will be available or on what timeline. Additionally, there is no substantial guidance available as to what criteria need to be met in order to even qualify for this specific type of aid. My fingers are crossed that the SBA will be able to move swiftly, as many companies need money today to keep their doors open. In the meantime, the SBA recommends continual monitoring of your application status online.


As of this morning, High Rock re-applied for the SBA EIDL. The process took substantially less time to complete due to two factors: 1. The website moved at a normal browsing speed, and 2. The information required to submit an application was noticeably reduced. With regard to the latter, this time all we had to provide was:

1. Eligibility verification based on a multiple-choice question from the SBA.

  • Our reason was that we are a business with not more than 500 employees (all available answers are all pre-populated).

2. Basic business information, including:

  • Business name, EIN, organization type
  • Gross revenues and cost of goods sold for the 12 months prior to Jan. 31, 2020.
  • Business address, nature of activities and established date of the business

3. Basic business owner information, including:

  • Name, phone number and title
  • Ownership percentage, Social Security number, birth date and address.

4. Additional information, including:

  • Whether the business is applying for the $10,000 grant advance
  • Banking information where the grant advance is to be sent.

 

As of yet, we are still in a waiting game to get a response from the SBA on our application. We’ve received acknowledgement via the website that our application was submitted, along with an assigned application number. We have not yet received an email acknowledgement or any communication as to how long the review process will take or how much will be awarded (if anything). For now, we are crossing our fingers that the SBA is able to support small businesses like ours effectively during this difficult time.uu

 

 

 

Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information in this newsletter might apply to your specific situation, contact us for more details and counsel.

 

15427 Vivian - Taylor, Michigan 48180 – voice (734) 946-7576  fax (734) 946-8166

website: www.rigotticpa.com    email: rigotticpa@gmail.com