By Dan Mika
Corridor tax professionals are growing more worried by the day that the ongoing government shutdown will hamper their ability to best apply last year’s tax code changes for business owners.
The federal government traditionally halts processing returns in shutdown periods, and has had to delay refunds during previous closures, most recently in 2013. But on Jan. 7, White House officials told reporters the Internal Revenue Service will recall some of its near 70,000 workers to process returns starting Jan. 28, despite a top House Democrat calling that move illegal.
The shutdown, now the longest in American history, has yet to show any signs of ending due to a political stalemate between President Donald Trump and Congressional Democrats over Mr. Trump’s demand for $5 billion to build a wall on the U.S.-Mexico border. Mr. Trump reportedly walked out of a meeting with congressional leaders on Jan. 9 after Democrats refused to negotiate, later tweeting later tweeting that the meeting was a “total waste of time.”
Tax professionals contacted by the CBJ believe most people will be able to file simple individual returns, like the Form 1040, without much issue on Jan. 28. However, they fear this year’s tax season will cause more headaches than usual for businesses, due to key changes made by the sweeping federal tax law enacted last December.
Kim Vine, a partner with accounting firm Terry, Lockridge & Dunn in Cedar Rapids, said she wasn’t expecting to receive much direct guidance from the IRS in how to apply the new tax law, and that she was planning to make interpretations from formal rule proposals made by the agency in December.
Because IRS employees tasked with writing those rules aren’t working right now, accountants won’t receive guidance until later than they planned.
One of those rules includes a clarification on how to calculate depreciation for updates to commercial or rental properties, which could dramatically affect the owner’s tax bill.
“Those were some of the biggest items that accountants were waiting for … that we were hoping to get in December, but they’re not writing regs right now,” Ms. Vine said.
CPA firms could also face significant delays if their clients haven’t given them explicit permission to represent them against the IRS, as the branch of the agency that handles power of attorney requests is not expected to reopen until the shutdown ends. Ms. Vine said that will prevent accountants from being able to handle their clients’ cases in case of a dispute.
“And even then, we can’t resolve issues with the IRS because we can’t get power of attorney on file or they simply aren’t staffing,” she said.
Even if the shutdown were to end immediately and federal employees got back to work, the IRS would be several weeks behind the private sector in preparing for the rush of tax season.
Gary Schmit, a tax lawyer with Phelan, Tucker, Mullen, Walker, Tucker & Gelman LLP in Iowa City, said tax professionals and bookkeeping software companies are operating on the assumption that they can start working on returns, but won’t finalize and submit them to the IRS until they can apply the agency’s guidance for clients or incorporate it into tax preparation programs.
He specifically mentioned changes to Section 199A, which was amended to allow for a 20 percent deduction on qualified business income and income from real estate trusts or publicly traded partnerships. It’s not exactly clear what kinds of businesses can claim that deduction.
“Without final guidance, I believe it’s going to be difficult to finalize those tax returns, and the longer the shutdown goes, the more delayed that guidance becomes,” he said.
Ms. Vine said business owners should continue to prep for tax season as they normally would and give their advisors as much time as possible to figure out how best to apply the law to each specific situation.
“Just because the government is dragging its feet doesn’t mean taxpayers should,” she said.
Mr. Schmit echoed those sentiments, and said patience will be key for business owners as the effects of the shutdown compound on federal workers.
“Anybody that has an ongoing issue with the IRS that started prior to the shutdown is in a perpetual hold situation until the government opens,” he said. “It’s anybody’s guess when it opens, and each passing day, you create a bigger backlog for the IRS or any government agency to deal with.”