AICPA and NCCPAP ask IRS to suspend tax penalties

The American Institute of CPAs and the National Conference of CPA Practitioners are separately asking the Internal Revenue Service to refrain from imposing underpayment and underwithholding penalties on taxpayers in response to some extensive changes in the Tax Cuts and Jobs Act.

AICPA Tax Executive Committee chair Annette Nellen sent a letter Wednesday to IRS and Treasury Department officials asking them to grant relief to any taxpayer subject to the provisions of section 965 under the Tax Cuts and Jobs Act and its related penalties. Section 965 requires certain U.S. shareholders to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the U.S. The underpayment penalties are imposed under section 6654 and section 6655 of the tax code. Section 6654 applies to individuals, while section 6655 applies to corporations.

“Taxpayers faced substantial uncertainties relating to how to determine the amount of their actual tax liability for the 2018 taxable year as regulations addressing many of the statutory changes made by the TCJA were not yet available or were released late in the year as proposed regulations,” Nellen wrote in a letter to IRS Commissioner Charles Rettig and other top officials at the IRS and Treasury. “Taxpayers who were subject to section 965 inclusions had their 2017 tax liability significantly inflated by a one-time amount. The calculation and inclusion of the separate tax liability under section 965 creates uncertainty among taxpayers as to what amount from their 2017 return represents the safe harbor amount.”

Cohn, Michael

The National Conference of CPA Practitioners sent a separate letter Wednesday to the IRS asking it to avoid imposing underwithholding penalties on taxpayers who failed to adjust their W-4 forms in response to the Tax Cuts and Jobs Act. The NCCPAP said it supports the position of Sen. Ron Wyden, D-Oregon, the ranking member of the Senate Finance Committee, who also wants the IRS to suspend the potential penalties. Wyden sent his own letter last week to Rettig expressing concern that tens of millions of taxpayers would face such penalties (see Wyden asks IRS to overlook penalties for unexpected tax bills). In that letter, Wyden cited a report from the Government Accountability Office estimating that nearly 30 million taxpayers could have underwithheld their taxes last year.

The NCCPAP asked for any potential penalties assessed on individual income tax returns for 2018 be suspended due to the fact that many taxpayers may, in fact, have a balance due to the federal government once their income tax return is prepared. The organization noted that the Tax Cuts and Jobs Act effectively removed or limited a number of the itemized deductions that taxpayers had been able to take in past years, along with many other changes, which can have dire repercussions on many taxpayers’ exposure to potential penalties.

“These changes can result in taxpayers having a higher taxable income,” wrote NCCPAP president Neil Fishman. “This tax bill, once passed, went into effect immediately, giving both the taxpayer and the tax professional very little time to assess the changes and determine what impact it would have. As tax professionals, we were hoping that Congress would have passed technical corrections and further clarification legislation to clear up the uncertainties in the original legislation. Unfortunately, there was no action taken in this area. This ‘gray’ area may cause the taxpayer to owe additional funds to the federal government, which could result in a possible underpayment penalty.”

The NCCPAP backed Wyden’s position that a one-time penalty waiver for underwithholding would spare both taxpayers and the IRS some grief in the upcoming filing season and give the Treasury a reprieve to get withholding and the W-4 form right in time for the 2020 filing season.