Tax Insights

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Dancing with the tax conformity devil

Every year it seems that the practitioners in Arizona wait on the sidelines like wallflowers while the legislature and the governor dance with Internal Revenue Code tax conformity.

Some years it is harder to sit by, with our hors d’oeuvres and beverages (adult or otherwise!) and watch this dance.

Some years it seems to take way too long for our dance card decision to be made. And by way too long, in the tax practitioner community we think it should always be a top priority of the politicians, but they do not necessarily agree. We are the ones in the trenches trying to figure out how the legislation is going to play out, so we can help taxpayers make decisions about filing tax returns. We would prefer tax conformity decisions to be made in February. We rarely get that.

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Some years there are only a few items for conformity to be considered. This would not be one of those years. With three major pieces of national legislation, all of which contained tax provisions, and countless numbers of form updates and interim final guidance, it has been some year. And the last legislation, passed in March 2021, included items retroactive back to the 2020 tax year. As a reminder, we are filing those tax returns now. The analogy would be as if we were waltzing along and then the music changes in the middle of the dance and we need to switch to a jitterbug; we just don’t have the proper shoes for that. In this case, shoes are like tax software.

So what, you may ask, do we do? Well, the Arizona Department of Revenue “assumes” tax conformity when they prepare the forms for filing every year. And because they assume conformity, we do as well.

There are, of course, exceptions. There have been exceptions in the past, so we maybe assume we will have those same carve outs this time around. (Editor’s note: We may have guessed wrong on a couple of those this time around.)

Governor Ducey signed the Arizona conformity bill on April 14, 2021. I have read the bill. It is two pages long. Well, that may be an exaggeration – I think it is 1 ½ pages long.

Signed one day before estimates for the first quarter are due for 2021. Signed one day before fiduciary returns are due. Signed one day before corporations are due. It would have been impossible to wait to file. So we did not wait.

Similar to Cinderella at the ball, we turn into pumpkins at midnight on April 15. But our glass slipper is available – we have until May 17 to correct any erroneous assumptions on individual returns not yet filed. And we have a couple of years to amend returns for where our prognostication was incorrect, as long as we can maintain our rhythm and assuming the dancing shoes still fit and do not wear out going forward!

Please contact a Henry+Horne tax professional with any questions.

Donna H. Laubscher, CPA