HB 1264, introduced by Del. David Toscano (D-Charlottesville), dealt with the penalties associated with tax due returns on extension that are electronically filed. The bill summary indicated that it would ensure that no late payment penalty would be imposed if the full amount of tax due was paid by the extended due date of the return, regardless of whether the return was filed prior to the extended due date. On the surface, this appeared to be a good bill, intended to fix an unforeseen consequence of the e-file mandate. There were a lot of comments on the VSCPA tax listserve about this issue over the course of the past year.
Del. Toscano contacted the VSCPA and asked us to take a look at the bill and make sure that it truly accomplished his intended goal as stated in the bill summary. Upon closer review, it was determined that the bill had been drafted incorrectly and referenced the wrong section of the statute, so it would not have achieved the patron’s goal. Additionally, the Virginia Department of Taxation (TAX) determined that if amended to reference the correct section of the statute, the bill would result in a $100 million, one-time, negative impact to the Commonwealth. Furthermore, TAX indicated that the problem could be handled with an administrative process change.
We were invited to participate in a meeting with Del. Toscano and TAX last week to discuss the bill and whether it should proceed. In preparation for the meeting, I consulted with members of the VSCPA Tax Advisory Committee for input on how best to proceed. During the meeting, it was determined that an administrative fix was preferable to legislation as long as TAX could provide assurance that they could make the necessary changes.
The plan at this point is for TAX to come up with a way to "warehouse" e-filed returns, similar to what is already done for returns filed by May 1. The VSCPA has offered assistance in achieving this goal. TAX has also assured us that they will allow for a reasonable amount of time for taxpayers to submit payments on e-filed returns and in the event that does not occur they have committed to abating any late payment penalties assessed in error. TAX acknowledged that this has been an ongoing issue over the past several years and has assured us of its commitment to fixing it now.
Unfortunately, due to the lead time needed for such programming changes to occur to support the warehousing solution, a fix will not be in place until the next filing season. This outcome would be the same even if legislation were to pass. The VSCPA plans to provide information to members on how to avoid the additional penalties and guidance on how to pursue having penalties abated if they are assessed in error.
The bottom line in all of this is that this is just one piece of the puzzle in terms of how TAX handles penalties. The VSCPA takes the feedback we've received from our members about this very seriously and plans to look at the penalty structure overall. That will better enable us to better collaborate with TAX to come up with fix that everyone can agree on.
The other bill we've gotten a lot of feedback from members about is HB 341, introduced by Del. Tony Wilt (R-Harrisonburg). This bill would have required the Auditor of Public Accounts (APA) to outsource all audit work to CPA firms. This bill was a complete surprise to the VSCPA and immediately caught our attention.
Again, on the surface, this looks like a bill that would benefit many VSCPA members. However, we were concerned at the outset because there was not sufficient information available to demonstrate that making such a change would result in a more cost-effective and efficient audit process than what is currently done by the APA staff, several of whom are CPAs and VSCPA members. While we agree that this is a topic that deserves some attention and research, it represents a huge step that would result in the APA laying off two-thirds of its staff, a move which has a significant cost associated with it. This is also a change which, once made, could not be easily reversed. Lastly, from the VSCPA's experience in administering the AICPA Peer Review Program, we have concerns about the number of new audits subject to Generally Accepted Government Auditing Standards (GAGAS) and whether or not there are enough firms qualified to perform these audits.
Ultimately, we determined that it was best to encourage Del. Wilt to take a step back and allow this issue to be studied before proceeding, and he agreed. This resulted in a joint letter from Wilt, who issued a joint letter with Del. John O’Bannon (R-Richmond), chair of the subcommittee that considered the bill, directing the APA to study the issue. The VSCPA was named in the letter and has offered assistance in compiling and evaluating the proposal.
I think it's also important to note that both pieces of legislation were the direct result of VSCPA members contacting legislators and getting engaged in the process. This is fantastic, and I'm so excited to know that members are getting engaged! Unfortunately, the VSCPA was unable to support the bills for the reasons discussed above. I strongly encourage members to contact us whenever they have an issue they feel needs to be addressed. While we can’t guarantee that we’ll be able to take up every issue brought to our attention, we will certainly give consideration to anything brought forth by a member.