In Part 1 of this series we looked at what went wrong with the IRS. (That post might have been shorter if I had written what went right.) Today, let’s look at what should be done by Congress and the IRS to fix this mess.
1. Simplify the Tax Code. Our Tax Code is a mess. It is far, far too complex. Most tax professionals now prepare returns for the proverbial husband, wife, 2.2 children living a relatively simple, straightforward life because they cannot do their own taxes due to the complexity! Congress should (a) pass simplification, not complexity and (b) stop making the IRS a benefits agency (which it isn’t). Unfortunately, there is no chance of anything like this coming from this Administration.
2. IRS Needs to Stop Stupid Make-Work. As I noted in Part 1, the Schedule K-2/K-3 regulations on purely domestic partnerships with no foreign operations are a perfect example of this. There’s no reason for this. Unfortunately, I have seen no signs of the IRS understanding tax professionals’ needs over the past few years and I have significant doubts of anything like this happening in the near future.
3. Get IRS Employees Back in the Office. One of the things that has led to the massive amounts of paperwork sitting in bins is that IRS employees are still not fully back at their offices. The IRS announced that all employees will be back in their offices by June 30th. Here, it’s time for me to give kudos to the IRS for resolving one of the factors that has led to issues.
4. Hire More IRS Employees. To the IRS’s credit, they are trying to hire more employees but the current environment and the federal government’s pay scale makes this difficult. I do expect this to resolve over time.
5. Congress Needs to Increase the IRS’s Budget to Allow Multi-Year IT Projects. Congress did increase the IRS’s budget for the current year, but IRS management has (rightly) complained about the budgetary process. The main IRS computer system is older than I am (it dates to 1959). Do you, in your office, use 63-year old computers? To be fair to Congress, one of the reasons the IRS’s budget got cut was the Lois Lerner/IRS nonprofit scandal from a few years ago: The only tool Republicans had to protest was cutting the IRS’s budget. While I see the IRS’s budget being increased, I think Congress will do it incrementally rather than significantly because Republicans still don’t trust the IRS. A factor that impacts this is the ProPublica release of taxpayer information–which the current Administration appears to be ignoring.
6. Change the Tax Filing Deadline to May or June 15th. I hated writing this, but the reality is that Tax Season is far too compressed and tax returns have gotten more complicated with more busy work. It’s just impossible for most tax professionals to set a mid-March deadline and get all the returns filed. (Indeed, as I’ll mention in Part 4 we plan on changing our deadline for receiving paperwork.) Many of our clients didn’t receive their brokerage 1099s until late March. Many of our clients still haven’t received their K-1s.
7. Go to the California System Where Extensions Are Automatic (But You Need to Pay the Tax). I’m not a fan of how California taxes residents, but the California system where extensions are automatic as long as you pay 90% of the tax due is an excellent one. Filing extensions is more make-work. This would also cause more individuals to make estimated payments–an added benefit to our tax system. Unfortunately, this change likely requires legislation, and getting this through Congress is unlikely.
I would love to be an optimist and see these seven solutions implemented. The reality is that other than seeing IRS employees in their offices, only small incremental change at the IRS is likely. Who suffers from this? All of us: taxpayers, tax professionals, and the IRS. But I promised to be realistic in this series, and we have to deal with the world as it is, not as we want it to be.
In Part 3 of this series (next week) we’ll look at the failures of my business.
Tags: 2022.Tax.Season