The Greek philosopher Heraclitus has been attributed with coining the phrase “change is the only constant in life.” His philosophical expressions have been quoted by judges in many cases. For example, Judge Posner once invoked Heraclitus’ famous statement that no person ever steps into the same river twice to illustrate that a conspiracy can be the same even if all the acts committed pursuant to it are different because the terms of the agreement, not the details of implementation, determine the conspiracy’s boundaries. One author has even managed to invoke Heraclitus in relation to depreciation: “The philosopher Heraclitus declared, ‘Nothing endures but change,’ an observation particularly pertinent to the statutory allowance for depreciation. It has changed repeatedly and radically over the years in response to shifting economic and political winds.”1
The coronavirus (COVID-19) pandemic has thrown our personal and professional lives into a constant state of change, as we deal with social distancing, e-learning, remote working, and Zoom. As one client aptly said to me the other day (without quoting Heraclitus but apparently reading my mind), we are dealing with the “next normal” as opposed to a “new normal.” The constant change or next normal rings true in the tax world as well, both for taxpayers and practitioners, as we all adapt to today’s challenges. This article will touch on items related to the tax response to COVID-19.
Tax Response to COVID-19
COVID-19 has had a devastating impact on the U.S. economy. Millions of people have lost their jobs and many businesses have closed their doors. Obviously medical care is a necessity for those physically impacted by COVID-19. And, arguably, there has never been more of a need for cash and relief from, or at least deferral of, liabilities for many individuals and businesses to make ends meet.
The government, taxpayers, and practitioners are in the midst of the next normal when it comes to taxes. Congress has passed several pieces of legislation, including the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which contain important tax provisions designed to assist taxpayers. CARES Act provisions include:
- Employee retention tax credit;
- Expanded usage of net operating losses;
- Modified limitation of losses for pass-through entities and individuals;
- Relaxed section 163(j) interest expense limitation;
- Modification to qualified improvement property;
- Delayed payment of employer payroll tax and self-employment tax;
- Waiver of early withdrawal penalties for COVID-19-related distributions from qualified retirement accounts;
- Above-the-line deductions for up to $300 of charitable contributions and removal of charitable contribution limits to itemizing filers;
- Temporary suspension of excise tax applied on alcohol used to produce hand sanitizer; and
- Allowing corporate taxpayers to elect to immediately claim entire outstanding alternative minimum tax credits.
Other significant non-tax legislation includes direct payments to individuals and loans to small businesses.
The Treasury and IRS have been working hard to issue significant guidance in light of COVID-19. Each has also created dedicated webpages, available here and here. Noteworthy guidance includes delaying the due dates for several tax-related filings and providing clarification and guidance for the tax provisions in the CARES Act. For example, individual income tax returns and payments for 2019 are not due until July 15, 2020, and other tax deadlines have been delayed. As explained by Treasury Secretary Mnuchin: “This deferment allows those who owe a payment to the IRS to defer the payment until July 15 without interest or penalties. Treasury and IRS are ensuring that hardworking Americans and businesses have additional liquidity for the next several months.”2 The IRS, pursuant to its new IRS People First Initiative, has been adjusting and suspending key compliance programs to provide relief to individuals and businesses facing tax uncertainty. IRS Commissioner Rettig summed up the goal of the initiative as follows: “The new IRS People First Initiative provides immediate relief to help people facing uncertainty over taxes … We are temporarily adjusting our processes to help people and businesses during these uncertain times. We are facing this together, and we want to be part of the solution to improve the lives of all people in our country.”3 And, in a move that would have been unheard of just a few months ago, the IRS is actually accepting faxed copies of certain forms, corresponding more regularly with practitioners by encrypted email, and in some situations accepting digital signatures. Key IRS personnel have also been active in ABA webinars and phone conferences with practitioners, providing key insights on what is happening inside the government.
The Tax Court is doing its part as well. With trial sessions cancelled until at least the fall and no mail presently being delivered to the Court, there will be a natural backlog of cases. However, the Court in many cases is requesting status updates and encouraging parties to work together more than ever and submit cases fully stipulated if possible. Some leniency is being shown to unrepresented taxpayers because the Court cannot know whether documents may have been mailed by taxpayers but cannot be delivered. Despite the closure of the Tax Court’s building, opinions and orders continue to be released at an impressive rate.
Tax practitioners have been busy as well. My firm, like many others, has a webpage dedicated to COVID-19 resources for taxpayers. Practitioners are working on a wide variety of COVID-19 issues, both tax and non-tax related, and striving to provide the best service to clients in these difficult times. Many tax practitioners are engaging in dialogue with Treasury and the IRS, and the Tax Section has provided comments to the government regarding the tax implementation of the CARES Act.
Last, but definitely not least, low-income taxpayer clinics (LITCs) have also heeded the call. One need only look to the ABA Tax Pro Bono & Tax Clinics listserv to see the level of effort being performed by LITCs and other volunteers to assist low-income taxpayers. New questions arise hourly—not daily, weekly, or monthly—and the LITC community is constantly sharing experiences and tips to help the less fortunate. Although I do not read every email that comes through on the listserv, I have been amazed at the quick responses and collaborative nature of LITC personnel.
These are difficult times for everyone. As noted above, we are dealing with the next normal of social distancing, e-learning, remote working, and Zoom. Thus, while our day-to-day routines may never be the same, it is comforting to see the efforts being put forward by so many to assist the taxpayer community.
As always, please do your part and give back to the less fortunate. If you are interested in doing pro bono work (tax or otherwise), talk to your law firm’s pro bono coordinator, contact your local low-income taxpayer clinic, or reach out to me or someone on the ABA Section of Taxation’s Pro Bono & Tax Clinics Committee. Stay safe everyone! ■