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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.

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