“What about the $850?”

It’s the first question Bob Begin, a Saco-based certified public accountant, heard on Friday, and a query he and other CPAs will likely continue to hear as taxpayers await critical guidance from the Internal Revenue Service.

The IRS earlier this week said the agency is deciding whether or not to tax the pandemic and inflation relief checks sent by Maine and other states to their residents last year. Maine intended for its payments to be exempt from state and federal taxes, under a classifaction as “disaster relief.” But now, two weeks into the tax season, the IRS still hasn’t determined whether that’s true.

Taxpayers, even if they’ve already filed their returns, have been told to sit tight and wait for more information. Don’t file if you haven’t yet. If you have, don’t file an amendment just yet, the IRS said.

However, the announcement and subsequent lack of guidance threaten to strain Maine’s already overburdened and understaffed tax professionals, just as their busy season is starting to pick up steam. 

“Right now, they’re running on fumes,” said Patricia Brigham, executive director of the Maine Society of CPAs.

Tax professionals are usually working at full tilt between January and April, she said, and since the pandemic, there hasn’t been much downtime. Early on, there we PPP loans to deal with, extended tax deadlines and stimulus payments. It was difficult for the industry to catch its breath. Plus, Maine and other states are contending with a massive shortfall of tax professions. According to the Wall Street Journal, roughly 300,000 accountants and auditors have left their jobs in the last two years.

“So to have to go back and redo a tax return is just duplicate effort,” Brigham said. “Anything that adds extra work is actually a stressor to the system.”

So far, CPAs aren’t being hounded with phone calls about the $850 payments, she said. It’s still early, though some members have said they’re starting to get questions from friends and family. As time goes on and people have more questions, it will likely be the smaller agencies working that bear the brunt of those client concerns, Brigham said – agencies working with middle- and lower-income families, rather than big firms with high-earning or business clients. The relief payments went out to individuals making $100,000 or less and couples making under $200,000.

“The people that are probably most impacted are the people who are least able to bear the burden of increased taxes,” she said.

‘YOU CAN’T SIT AROUND AND WAIT’

A positive sign for CPAs: According to Brigham, many people who might need to file an amended tax return likely did their taxes through an online service such as TurboTax, H&R Block or Jackson Hewitt. People in the tax bracket receiving the $850 payments are less likely to use a CPA, she said. And if, by the second week of February, they’ve already completed their returns, they’re likely not complicated ones.

Online tax service providers have not been forthcoming about how the uncertain tax liability could affect their customer base. TurboTax/Intuit and H&R Block did not respond to multiple inquiries Thursday and Friday seeking information about how the IRS decision might alter their tax preparation programs – and what, if anything, users should do.

In a statement, Jackson Hewitt said it is awaiting guidance from the IRS to provide clarity on the issue.

For accountants, the question is a repeat of last year, when the IRS initially said that federal stimulus checks were taxable, only to have lawmakers quickly amend authorizing legislation to make the money nontaxable, said Begin, the Saco CPA.

So Begin said he’s letting his clients decide. He lays out the consequences of not paying – likely the IRS demanding a payment to cover the impact of the stimulus as taxable income – and the impact of treating the stimulus as income, which would be a small overpayment of taxes.

For a taxpayer who makes about $50,000 a year, they would owe about $110 in additional taxes to cover the stimulus check and probably a few dollars in interest if they opt to forego paying taxes on the stimulus checks. Higher-income earners, who would face a bigger tax bite, probably didn’t get a stimulus check in the first place – individuals making more than $100,000 and couples making more than $200,000 weren’t eligible.

Begin is advising clients to make a choice and then go ahead and file.

“You can’t sit around and wait for the IRS to make a decision,” he said, but “I’m absolutely leaving it up to the client.”

Stanley Rose, tax director at Portland-based accounting firm Baker Newman Noyes, said in a statement that the agency doesn’t expect to wait long for more instructions, but that for now it’s sitting tight.

“We plan to hold off filing impacted returns for a bit, to avoid the need for possibly amending them,” Rose said. “With respect to recipients of Maine’s $850 checks, we tend to agree that Maine’s legislators structured those payments (and their qualifications) in a manner that seems very likely (although nothing is guaranteed) to meet the definition of benefits that are exempt from federal income taxation,” he added.

Peter Dufour, a CPA and founder of Dufour Tax Group in Portland, said he’s not overly concerned with the latest development from the IRS. As of Friday, he hadn’t received any calls from concerned clients. 

But the news is still pretty new, and he’s sure they’ll eventually come in, especially if the IRS does rule that the checks are taxable. 

But he’s hoping the feds won’t decide that way. 

“I think it wouldn’t work in their favor if they made them taxable,” he said of the IRS. “It’s at odds with the purpose of the payments. The IRS has been under fire quite a bit in the last couple of years because of their struggles … I think they need to consider the political implications of their decision.”

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