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Senate Bill 2: A Lap Around the TRAC — My Reaction to the News on Indiana PTET


Feb 8, 2023

Thank you to the members who have posted questions and responses regarding your firm's approach to implementing SB2: Taxation of Pass-Through Entities. Having an online community accessing 6,000+ CPAs where you can share ideas, ask questions, consider alternative opinions and approaches has been a game changer for firms across the state, mine included, as we determine how best to serve our client’s needs and not burn out our staff during this busy season.

I'm Ben Smith, and I serve as the chair to the Society’s Tax Resource Advisory Council (TRAC) and am a member of Genesis, a group of firms dedicated to sharing issues in managing firms, utilizing technology. I’m also a member of DOR’s Commissioner’s Tax Advisory Council and am the president and CEO of Estep-Doctor & Company, PC, a firm that services clients, manages staff and addresses evolving professional issues. I share all this because I want to tell you about my 24-hour (well maybe 36-hour) journey of my reaction to the news that an effective date of 1/1/23 was off the table and SB2 was fast tracked with a 1/1/22 effective date.

I can tell you my initial reaction was visceral, I felt sucker punched, I couldn’t understand how this could happen. Like many of you, I gathered my partners, and we started talking through what the bill did and did not do and what it meant for our firm, our staff, and our clients. I can admit this was not a calm, rational discussion and emotions were high. I talked with Society staff and explained with my heart in my throat that this bill could affect my firm so adversely that we could have serious cash flow issues having to extend several hundred returns, not to mention a mutiny amongst staff with everyone walking out the door.

I was so distraught that I started drafting testimony and planned to go to Indianapolis to explain the harsh realities of trying to keep a CPA firm in business when legislators didn’t consider fallout from enacting a retroactive tax of this magnitude.

I was so distraught that I started drafting testimony and planned to go to Indianapolis to explain the harsh realities of trying to keep a CPA firm in business when legislators didn’t consider fallout from enacting a retroactive tax of this magnitude, in the middle of tax season and on the heels of the last two difficult seasons. I called Commissioner Grennes and asked what DOR’s plan was for implementing this retroactive tax. He reminded me that his staff deals with similar realities regarding tax legislation every year during tax season when the General Assembly is in session. He’s right — every year there is some new challenging tax situation to deal with whether it’s state or federal and every year, just like CPAs around the state, they figure it out. It isn’t always pretty but we all do our best to make it happen.

Of course, there was more discussion, more anger and more frustration with colleagues as we tried to wrap our heads around this. I ran numbers again, thought about how we could mitigate it, which clients it would affect, how we might sort clients who would benefit and those who would not be affected all that significantly. I won’t lie, this was a heavy weight on me as I continued to process the looming crisis. Our newest and youngest principal sensed my distress and asked what was wrong. As I explained the situation, he jumped into problem-solving mode and began challenging my thinking. (Youth, right?!) 

 

Well, as we laid out each play, I realized we could create a plan to assess clients and mitigate the workload. However, more importantly was the realization of how much money we could save some clients and how that could benefit their business with our counsel. Was it going to be hard? Absolutely, but we do hard. Was it going to be smooth and glitch-free? Oh heck, no. Was it a problem we could solve? Yes, that’s what we do. Was it the right thing to do for taxpayers in Indiana? I had to admit yes, we owe it to our clients to figure it out. By the next morning, I was on the phone with Society staff discussing the Senate committee hearing and the Society's testimony…and I had shredded my draft testimony.

The most important thing is: we must have a discussion with our clients, and figure out how much of a tax savings it is for each one individually to determine if it makes sense to elect retroactively or pass and wait to elect for 2023. For some, the impact will be quite significant and for others a very minimal or no impact compared to the process of extending and/or filing and amending to elect retroactively.  As we continue down the road toward what appears to be passage of this taxpayer friendly bill, INCPAS, TRAC, and other volunteers will continue to provide advice, tools and other helpful insights here on the Open Forum so that we can all be as efficient as possible.

So, I bear my soul to you, my fellow CPAs, business professionals and advisors, simply to remind you that we are problem solvers, we do hard things — clients and their businesses are entrusted to our care, and together we can make this happen. We have resources to share ideas, discuss plans and strategies, to have hard conversations with clients, to express concerns and thoughts on how to navigate what will be a real challenge for all of us this year. Through the Society, you have an online community to talk with others facing similar challenges, tell staff what tools would be helpful, rely on relationships we have built with legislators, with DOR, with other business groups, and tap into your network of trusted business advisors.

Know that opportunity always comes out of challenging times. Down the road a bit, we need to consider: are there ways we could better manage clients, is our business and billing model right, are their efficiencies to be gained by leveraging technology or employing new tools? Yes to all, and we'll do that, but just now I am going to refill my coffee, stop by the office of my younger partner and thank him for helping me realize that we are up to the challenge of taking on yet another tax season with our best effort.

Best of luck to you all and thank you for your time.



6 comments

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  1. Angie Eggering | Feb 21, 2023
    Thank you for sharing your journey Ben and being an advocate for us! There are so many unanswered issues out there, we are struggling to identify them all let alone decide what the best course of action is. I would love to see the society set up something similar to the AICPA Town Hall weekly meetings where we could tune in and hear the latest news along with guidance or at least 'best practices' to consider on all the issues.
  2. Benjamin Smith | Feb 08, 2023
    Also, another realization came to mind today. We already have a Composite Return in place for out of state shareholders. The software can be updated fairly quickly I believe, to allow Indiana residents to be included in the Composite return. DOR has already sent bulletins out to the software vendors to make this switch happen as quickly as possible. I would not think this would be a huge lift for the software vendors.
  3. Courtney Kincaid | Feb 08, 2023
    Daryl - I want to follow up to your comment - the 3/15 to 3/31 push you mention is not a result of any DOR/legislature challenges. Unfortunately, it's MY fault. As things were being drafted, questions floated and information needing to be shared, I created this problem through a simple typo. The 3/31 date was the date given by DOR from the beginning. I know DOR is already also working on communication to all certified software vendors, as it relates to the implementation of SB2. I am sorry that my error is causing any angst. It's always challenging to share information in such a voluminous and rapid manner; I can assure you, this is not a "push" or representative of the legislature's timeline.
  4. Stan Cook | Feb 07, 2023
    My wife is a teacher. I’ve said that the same people who draft tax law also draft education law. That is not a compliment. That being said, yes, survive, adapt and find ways to be a blessing to others.
  5. Richard Wheeler | Feb 07, 2023
    Nicely done Ben! I like your approach and indirect advice to other practitioners. I haven't been retired so long that I have forgotten the challenges of tax season.
  6. Daryl Petry | Feb 07, 2023
    Ben,

    I must say that a lot of those thoughts have circled around in my head although my reaction has probably been reversed from yours. My first reaction was anger, but that went away pretty quickly when i thought about the money that some of our clients could save. I thought, "OK, we can do this" But as this continues to drag on, i am getting more and more anxious. Originally IDOR was going to have the election ready by 3/15 which has now been pushed to 3/30. And that i am sure was caused by the legislature falling off their very optimistic timeline in getting everybody on board to vote and get a signature on this. I think back to what a disaster the PPP loan program was because the legislature pushed something through without considering all the hoops everybody was going to have to jump through to make this happen. I realize that is federal VS state, but we will see the same issues. Think back to this past summer and all the erroneous notices that were sent out from IDOR because of the computer changes they made. Do you suppose there will be notices sent out about this rush job? And because the legislature is not ramming this through as fast as they thought we are going to have less time to discuss with our clients what might be best for them.

    Maybe if this was so important the legislature should have called an emergency session and worked on this last fall?

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