I’ve had good Tax Seasons and bad Tax Seasons, but the first part of the 2021 Tax Season was unique. And uniqueness doesn’t mean good nor does it mean bad. Both points were present this year, and continue to be present. Let’s look at the highlights and lowlights of the first part of the 2021 Tax Season. (I state “first part” because we still have 50% of our clients’ returns to file–we always have a lot of clients on extension.)
The IRS’s Does Great! Let’s heap some praise on the IRS. The IRS generally did an excellent job in implementing the laws that Congress passed dealing with Covid relief. These laws required many changes to the antiquated computers that the IRS uses to process tax returns and given the IRS’s systemic issues (low staffing, ancient computer systems, etc.) they did an excellent job.
The IRS Made Some Confounding Decisions. Let’s take tomorrow’s tax deadline (June 15th) for residents of Texas, Louisiana, and Oklahoma as an example. Residents of those states can timely file returns tomorrow, and timely file extensions tomorrow. (Individuals residing outside the United States can also so file.) But if a resident of Texas wants to file an extension, that extension must be mailed to the IRS. Ask any tax professional about correspondence sent to the IRS and the theme song from the musical Annie comes to mind (tomorrow, tomorrow, it’s always a day away). Yet the IRS wants to increase the mail backlog. This makes no sense.
Speaking to the IRS Is Near Impossible. The Taxpayer Advocate reported that 2% of individuals attempting to reach the IRS actually do so. And when you do, you’re likely on hold for a long time. I have eight matters that require that I speak with the Practitioner Priority Service (PPS). I have either Power of Attorney forms or Tax Information Authorizations for each client. Some of these I could handle using the IRS’s e-services system if the IRS would timely process the forms. It’s currently taking the IRS three months to process forms. So I (along with other tax professionals) must call the IRS up.
I’m currently on hold for the business side of PPS, with a hold time of more than one hour noted. Now, I can work while I’m on hold but most individuals cannot–they can’t take phone calls, they must sit at home, etc. Meanwhile, I’ve tried to reach the individual side of PPS four times a day for the last week and cannot get through. If I cannot get through over this week I will have to mail letters on some of these matters, delaying resolutions for months–it’s taking the IRS on average ten months to read the mail. (While Commissioner Rettig states the IRS is timely opening their mail, they are not timely reading their mail.)
I have a client who had to mail his 2019 tax return to the IRS (the return has a form that is not allowed by the IRS to be efiled). It was mailed in late September (he was on extension, waiting for a K-1). The return was just processed. But my client was selected for Identity Protection Verification–that requires my client to call the IRS. He’s tried three times a day for the last week and cannot get through. Now, my client’s refund is about $40, so it’s not a big deal but the IRS’s inability to handle phone calls right now is a disaster that retards effective tax administration.
This Was an Early Year. Tax seasons are sometimes late (everyone wants extensions) or early (everyone wants to file yesterday). This was an early year–many clients wanted their stimulus money and, thus, wanted to file early. Unfortunately, there are so many hours in the day (my cloning machine still needs work) and…
Tax Paperwork Comes Later and Later Every Year. This year was no exception. Most of my clients who are in partnerships saw their K-1s come one week later than last year. That doesn’t sound like much, but a day here, a day there, and then you’re talking about many days. (My apologies to Senator Dirksen.) Adding to this was…
Congress Changing the Tax Law in the Middle of Tax Season Delays Tax Filings. Many clients received unemployment. When Congress changed 2020 tax law in March 2021, that means that tax professionals had to wait for (1) the IRS to update their computers and make any rules about the new laws and (2) the tax software to be updated. While the IRS and the software companies generally did a good job, this added to delays.
Most of Our Clients Understood This. We appreciate your patience this year. For those who did not understand, please note that we did inform you of our deadlines when we sent our Engagement Letters (and all returns whose paperwork was received prior to the deadline were filed).
There Are Black Clouds on the Horizon for Tax Administration. Congress and the IRS keep putting more and more work on tax professionals, and this is going to add to the cost of tax filings. Consider the new Schedule K-2s and K-3s. These are going to be forms used to report international transactions on partnerships and S-Corporations. Lots more work. Congress tends to pass laws mandating things like phone interviews for the Child Tax Credit. This doesn’t sound like much, but take three minutes here and three minutes there–well, I’ve used my Dirksen quote already but you get the idea.
However, that’s nothing compared to the Pro Publica leak. For those who haven’t heard, Pro Publica, a liberal special interest group, was provided tax documents showing how much various millionaires and billionaires paid in taxes. (I will have a lot more on this later this week.) Tax documents are never supposed to be released. Indeed, felonies have been committed.
Democrats want to increase reporting to the IRS (as a way to pay for increases in taxes.) Does anyone think that Republicans in Congress will go along with this given that the IRS can’t safeguard what they currently have? When the previous tax scandal occurred (the Lois Lerner/targeting GOP-leaning non-profits), Republicans cut the IRS’s budget (it was the only thing they could do to show their displeasure). Unless the felon is found in the next few weeks, expect the GOP to do the same thing as it’s their only means of showing displeasure.
Many Tax Professionals Are Unhappy. Jason Dinesen, an Enrolled Agent in Iowa, penned a piece titled “The Tax Field is Broken.” I don’t completely agree with the article, but much of what he writes is true. Tax professionals do have lives outside of their businesses, and many have not had a break in over a year. I have seen many posts about tax professionals retiring. That said,…
I’m Still Standing. Our business is doing fine (indeed, if you’re a tax professional and are interested in joining our firm, let us know), and I have no plans on retiring. This was, though, the first year I was generally miserable for more than a month.
Expect Tax Preparation to Impact Inflation. Everything I see shows that the supply of tax professionals is decreasing, the amount of work necessary to prepare a return is increasing, and the demand is increasing. The Law of Supply and Demand says that if supply decreases and demand is constant, prices go up. Here, we have a decrease in supply and an increase in demand and the amount of time needed to prepare the average return increasing. Prices are going to increase, possibly significantly.
That’s my rundown on the May deadline. We’ll see what the second half of the Tax Season brings us.
Tags: 2021.Tax.Season