Working with the IRS during a pandemic

COVID-19 has drastically changed how tax practitioners represent their clients in dealing with the IRS. Working remotely creates a host of challenges for resource-constrained IRS professionals. Moreover, the IRS released several initiatives and programs designed to provide relief to taxpayers. These programs include the People First Initiative, various revenue procedures and frequently asked questions (FAQ) on irs.gov. In light of these developments, we recommend that clients consider the following.

1. Consult with professionals before amending Form 1065

Partnerships subject to the centralized partnership audit regime (CPAR) generally must file an administrative adjustment request (AAR), rather than file an amended return. However, Rev. Proc. 2020-23 gives CPAR partnerships the option to file amended returns before Sept. 30, 2020. In most cases, CPAR partnerships should utilize this revenue procedure. AARs are complex and, perhaps most importantly, we have confirmed the IRS Office of Chief Counsel takes the position that AARs create nonrefundable credits. A nonrefundable credit could produce a disastrous result for clients, whereby some partners could lose the benefit from their share of the additional deductions.

2. Get ahead of the July 15, 2020, deadline

Under the People First Initiative, the IRS stopped nearly all collection efforts. The IRS will currently not issue levies or liens, and will not send cases to third-party collection agencies. However, IRS revenue officers are still working. Taxpayers with large outstanding liabilities should view this as an opportunity to establish favorable installment agreements or offers in compromise. At a minimum, taxpayers should begin to gather the documentation (e.g., personal financial statements and supporting documentation) that IRS revenue officers will demand post-July 15.

3. Prepare for your PPP audit

Coronavirus Aid, Relief, and Economic Security (CARES) Act Section 1100, the Paycheck Protection Program (PPP), provided $349 billion in relief in the form of forgivable loans to small businesses for job retention and certain other expenses. The PPP requires loan proceeds be used to pay payroll costs, interest on mortgages, rent and utilities. The PPP allows the potential for interest and principal to be fully forgiven if businesses spend the proceeds on these expenses within the earlier of 24 weeks from receipt or Dec. 31, 2020, and use at least 60% of the forgiven amount for payroll. This relief was intended for eligible borrowers with fewer than 500 employees; however, after the implementation of the PPP, it was revealed that many businesses had found loopholes in the law. Treasury Secretary Mnuchin stated the IRS and Small Business Administration will audit loans in excess of $2 million and will be prosecuting any instances of fraud. It is estimated there are 26,000 PPP loans in excess of $2 million. Upon request, companies will have to demonstrate the basis for its PPP loan eligibility certification. The Treasury Department is scheduled to issue guidance on the criteria the government will use to determine need for the loans.