This year, the Internal Revenue Service received 19 million requests for extensions to file until Oct. 17, so it looks like once again April is set to reappear right after Labor Day on tax preparers' calendars. How's the second season looking so far?
"Things have gone well," said Dan Henn, a CPA in Rockledge, Florida.
"Still dealing with procrastinators," he added. "We institute a penalty fee if documents are not received by a certain date and that fee increases each month."
"Things are status quo for 2022," said Gail Rosen, a CPA in Martinsville, New Jersey. "We have approximately the same percentage of extensions as in the past."
'Going well' doesn't mean glass-smooth, of course. "Some clients still don't have last year's refund. Veteran IRS employees [have been] reassigned to telephone duty but we're still getting 'courtesy disconnects,'" said Benjamin Bohlmann, a CPA and partner in the Miami office of Friedman LLP (Friedman recently merged into Top 25 Firm Marcum).
He added that ongoing troubles to knock down include erroneous automated collections letters to clients; tax software that couldn't handle a 7203; schedules K-2 and K-3 weighing in at 19 or 20 pages; and states with incomplete and contradictory information on the pass-through entity tax.
"We're experiencing a high volume of inquiries from new clients this year, as many accountants seem to be leaving the profession," Rosen said. "One accountant we know is giving his clients warning that he is retiring next year, and his partners are not taking on the individual portion of his practice."
She added that many clients say their accountant is "becoming non-responsive. Some haven't completed their 2021 return."
Staff troubles
"We're seeing an extended delay in receiving Schedule K-1 information," said James McGrory, a CPA and tax partner at Top 25 Firm Armanino LLP in Philadelphia. "Perhaps this is because of the current staffing crisis that many firms are experiencing, added complexities this year with Schedule K-2/K-3 foreign tax credit reporting or other circumstances, but it does not bode well as we come into the fall season."
Rob Seltzer, a CPA at Seltzer Business Management in Los Angeles, said he faced a unique staffing situation going into the extension season. "On the tax side, I just have two staff accountants and one per-diem person who does more bookkeeping than tax work," he said. "One of the two staff accountants was trying to start his own practice and became an outside contractor. He only did a small fraction of the work that he committed to do and was paid to do. In fact, he only completed two individual returns all of tax season. So that made things very challenging for me and the remaining staff accountant.
"So this summer has been far busier than normal," Seltzer added. "I think it'll continue to be that way as we get through the Sept. 15 and Oct. 15 deadlines."
Extra time, penalties, and gone
Tax pros should of course use the extra weeks to review clients' accounts to ensure that they are taking advantage of tax credits, deductions, and other tax benefits that may be available. Credits and benefits that could slip by this year include the Child and Dependent Care Credit and the Recovery Rebate Credit, the charity deduction for 2021, education credits and the Earned Income Tax Credit.
Timothy Speiss, a CPA and partner in the personal wealth advisors practice at Top 25 Firm Eisner Advisory Group, in New York, said approaching fall deadlines include a strong focus on accumulating client information in advance of filing deadlines and focusing on workflow components "to ensure client staffing and scheduling assignments are in place, executing an effective combined workflow and technology process and effective methodology to request and obtain client information," he said.
Speiss said his firm prompts clients to start sending in year-to-day tax info by the end of August, including compensation and withholdings; taxable dividends, capital gains, interest; estimated K-1 and 1099 income through Aug. 31; and deductions. Accumulating this also sets the stage for pre-year-end tax planning and estimating the year's income tax liability.
Another similarity between the regular and the second season: procrastinating clients. "Most of my clients have gotten their information to their tax preparers and their 2021 tax returns have been finished," said Bruce Primeau, a CPA and president of Summit Wealth Advocates, in Prior Lake, Minnesota. "There are always a few stragglers that have a tendency to wait until the beginning of October."
Henn said that his firm's penalty to clients for not providing paperwork timely is $500 if it isn't received by July 1, $1,000 by August 1 and $1,500 by Sept. 1.
Retaining consistently late clients "depends on the client," he added. "If they pay me and don't give it to me at the absolute last minute, I will keep the client," Henn said. "But if they're year after year getting it to me by Sept. 10 for a Sept. 15 deadline, then bye-bye to the client. Fool me once, shame on me. Fool me twice, shame on you and you are gone."
