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March 2019

IRS Commissioner Meets with Tax Professionals

On March 6, 2019, IRS Commissioner Charles Rettig met with a group of 15 tax practitioners, including CPAs, attorneys and enrolled agents, at the Austin IRS service center. TXCPA members in attendance were Lara Akinboye, Gary Brown, Julie Dale, Ira Lipstet, Christi Mondrik, and Jaime Vasquez.

Rettig was also in Austin to conduct town hall meetings with service center employees.

The Commissioner’s Life and Family

As many of the practitioners were aware, Rettig served 36 years as a tax controversy attorney with a practice in Beverly Hills, California.

His wife was a Vietnamese refugee who was inside the U.S. Embassy when it fell in 1975. She escaped and sold tobacco leaves on the street as a small child to support her family. Her father was taken to a “reeducation camp” where he lost one eye and became severely disabled before escaping. After moving to the U.S., Rettig’s wife was an auditor with the California Franchise Tax Board for 10 years. As immigrants, it was a proud moment for her family to file their first tax returns after arriving safely in the U.S.

He spoke about his son whose military service in the United States Army resulted in two deployments and living in a shipping container in the desert where there was a hotbed of terrorist activity. His daughter is a veterinarian.

The commissioner’s nomination and induction into office was a very proud moment for him and his family, as he is now able to join his son in serving his country. While he acknowledged that he does not necessarily know what it is like to be in their shoes, he did say it helps give him perspective.

The Importance of Service to Taxpayers

Rettig realizes that IRS tax revenue represents around 93 percent of the U.S. gross revenue. He realizes the needs of low income, ESL (English as a second language) and unrepresented taxpayers. More resources are needed to serve those who are unrepresented or underrepresented. He has also been working to enhance the IRS’ multilingual sensitivity.

Customer service is very important to him. Recently, he listened to telephone call etiquette at the Atlanta, Georgia service center. He heard IRS representatives field calls about refund issues and noted their conversational and friendly tones with individuals whose refunds were critical to the well-being of the taxpayers and their families. The care that employees took in seeking to resolve taxpayers’ issues was as unobtrusive as possible.

He also showed up on a Saturday for Pro Bono Day in D.C., where IRS volunteers addressed 14 cases; two revenue officers and low-income taxpayer clinic representatives volunteered to spend part of their weekend helping taxpayers. The volunteers resolved 12 of the 14 cases.

The Government Shutdown

The 35-day government shutdown hit the IRS’ 80,000 employees hard. Rettig held daily calls with the executive management team dealing with issues like furloughed employees who could not pay their childcare bills or receive unemployment compensation. The Department of Labor was denying unemployment claims, because the workers would eventually get paid when the government reopened.

The Filing Season

Despite all odds, the filing season has run smoothly. Lots of tax returns are being filed and lots of refunds issued. The IRS set a record this season in the most returns processed per hour. (Statistics are posted every Thursday.)

The IRS still lacks resources. The productivity it has achieved with limited resources is a direct result of the care, dedication, desire and pride of the workforce. Rettig eats lunch with the employees in the cafeteria each day so he can get to know them better. He has great conversations about career goals and other important topics.

Top Priority: Enforcement

Criminal investigation is an important investment tool. The IRS is using the tools it has to make surgical strikes. The indictment season is open until April 15. Rettig recognizes the indictment season from his years in practice representing taxpayers in criminal investigations.

Now, he is on the enforcement side and it is a top priority. He acknowledges that most taxpayers make a reasonable attempt to properly file a correct tax return and he does not want to punish them for trying their best. However, people who intentionally cross the line should be concerned that he is commissioner.


The IRS needs modernization. His goal is to maximize resources using collective ideas. The IRS is piloting a customer callback program like those available at some insurance companies. You can call, leave a message, get a call back and not lose your place in the queue.

Its IT department is thwarting up to 3 million daily cyber threats, requiring staff to work as creatively and efficiently as possible with limited resources. The IRS is fighting for funding. Rettig has participated in frequent one-on-one meetings with legislators. They are also looking for ways to collaborate with big companies for IT internships.

Part of the Solution

Rettig appreciates the support from the practitioner community; tax professionals are part of the solution … they help streamline the process. Working with qualified tax professionals makes everyone’s job more efficient.

The best thing practitioners can do to help the IRS improve is to say something positive about the IRS workforce when you see them doing good things. The dedication and care of the workforce is more than we realize. Nice comments go a long way.

Talking to Clients About Tax Extensions

As CPAs, we know how to navigate challenging filing seasons. One of those maneuvers is to file tax extensions on behalf of some of our clients. This lengthens the time we have to complete their returns and helps us adhere to our quality control procedures and standards. However, it can be difficult for clients to recognize the benefits.

Clients can have difficulties understanding the purpose of tax extensions and may feel uncomfortable with the process, particularly if they have never gone on an extension before. Before notifying a client that an extension is necessary, CPAs should prep them for this possibility.

Because of tax reform, more people than usual may face tax extensions this year. That means you will likely be talking to clients who have had little or no exposure to these kinds of filings.

Clients with small businesses are highly likely candidates for extensions this year. The new Section 199A deduction for passthroughs is advantageous, but the new law was unclear, guidance was slow coming, and interpretation and implementation questions still exist among tax practitioners.

There is also a new group of clients likely to go on extension this year - those who are in shock or disbelief over the initial results of their return. The loss of personal exemptions and the massive changes to Schedule A are taking many by surprise.   

Other clients who may benefit from extensions include:

  • Those affected by natural disasters.
  • Certain taxpayers who are out of the country.
  • Those with unexpected life events like a death in the family.

Keeping the following points in mind can ease the tax extension discussion and help your clients understand the process.

How extensions work — A tax extension is a six-month postponement on the time to file, but not on the time to pay. Your client must understand that the estimated tax liability seen on the extension form is their responsibility and they should plan on making an estimated tax payment at the time the extension is filed. This payment can reduce or eliminate interest and late-payment penalties.

Benefits and risks — The advantage of a tax extension is it gives a preparer more time to compile all the needed information to file a return accurately. Extensions are often more cost effective than filing an amended return later down the line and do not increase the likelihood of an audit. However, there are risks involved with a tax extension, including accruing interest and penalties. A client who misses the extended deadline will face steep penalties.

April 15 deadline still matters — All payments on taxes owed must be paid by the April 15 deadline or your client may be charged interest and penalties. April 15 is also the last day your client may set up an IRA or make IRA contributions for the 2018 tax year. Married couples are not permitted to change their filing status from married filing jointly to married filing separately after the April 15 deadline even if they go on an extension.

Business rules — It is likely more business clients than usual will face tax extensions this year due to pending tax reform guidance. Those who own C corporations must file their 2018 tax return or extension by April 15. Like individual tax returns, a business extension filed through Form 7004 is an extension of time, not an extension to pay.

Tax reform and state rules — Many states allow for an automatic filing of state extensions when a federal extension is filed, but other states may have different procedures or impose greater interest and penalties. Review the state rules with your clients.

Due diligence — Because of the volume and complexity of tax extensions this year, extra due diligence is necessary. CPAs must obtain written authorization from their clients before filing tax returns on their behalf. This document should also include details of the extension like estimated tax payment amounts and an explanation of possible interest and penalties. Consult the AICPA Code of Conduct, Circular 230, AICPA Statements on Standards for Tax Services (SSTSs) and the Internal Revenue Code (IRC) while preparing your clients’ tax extensions this year.

And while it goes without saying, extensions are a tried and true method for spreading out the workload, especially during this last stretch when days are getting longer and patience is running shorter.

Penalty Relief for Missing Negative Tax Basis Capital Account Information

Notice 2019-20 provides a waiver of penalties under IRC Sections 6722 and 6698 to certain partnerships that file Schedules K-1 that fail to report information about partners’ negative tax basis capital accounts for the partnerships’ 2018 tax year. The relief is conditioned on the partnerships providing the missing information in a separate schedule by March 15, 2020.


Some in Congress Concerned About Corporate Share Buybacks

William Stromsem, CPA, J.D., Assistant Professor, George Washington University School of Business


In recent years, many corporations have been buying back their own stock, thereby reducing the number of outstanding shares and increasing the proportional ownership of the remaining shares. This trend could increase as lower corporate tax rates and repatriation of foreign earnings bring in more cash. In some cases, there has been a dramatic reduction in outstanding shares. Apple, for example, bought back shares to the extent that outstanding shares dropped from 6.6 billion in 2012 to 4.7 billion today. Cisco, Wells Fargo, Pepsi, Starbucks and McDonalds have had similarly dramatic reductions in the number of their shares. Buybacks, which were once illegal, are accelerating in frequency and amounts. (In 1982, the Securities and Exchange Commission passed Rule 10b-18, which created a legal process for buybacks.)


Some members of Congress have expressed a concern that many corporations may use the tax benefits from the Tax Cuts and Jobs Act (TCJA) to buy back their stock rather than for increased wages, capital formation or job creation. In response, various proposals are being floated on Capitol Hill. Senator Marco Rubio (R-FL) has stated that stock buybacks should be treated as if the remaining shareholders were given a dividend and chose to use it to purchase additional shares to increase their percentage ownership of the corporation. Other members of Congress believe that the business breaks in the TCJA should be used to create jobs and raise wages, not just to enrich shareholders. Senator Chuck Schumer (D-NY), for example, has expressed the view that before a corporation can benefit its remaining shareholders with a buyout, it should be required to give more benefits to employees, such as higher wages, health care insurance coverage and sick leave.


The analysis that a buyback is a tax-free distribution is somewhat overstated: if a corporation buys back shares, a tax on the capital gain is being paid currently by those whose shares are purchased, and the value of the remaining shares is not dramatically increased, because corporate assets are reduced by the cash being paid out to purchase the shares. Also, while the buyback may result in a deferred capital gain until the remaining shareholders sell their shares, this is like deferring tax by holding the cash at the corporate level rather than paying a dividend.


It is unlikely that Washington will be able to agree to do anything until possibly after the next elections. However, buybacks are regulated by government agencies other than the Internal Revenue Code, so a legislative change may not be required. Cash-rich companies that are considering a share buyback should be aware that there is a potential for less favorable tax treatment if the political climate changes.