Right about now, every tax practitioner is looking for the magical key to help their dealings with the IRS go more quickly and hopefully make actual sense. The biggest pain points this tax season, aside from no one being able to get answers from the IRS, were mostly related to reconciling pandemic relief programs.
Everything from reconciling advance child tax credits, to determining whether taxpayers actually received recovery rebate checks, to clients have to file amended payroll tax returns in order to take advantage of employee retention credits. Reports from both the IRS and practitioners are clearly showing that inadequate reporting of credits and recovery payments on tax returns are slowing down refund processing pretty much to a screeching halt.
Without any quick way to get answers from the department, the backlog of unprocessed notice responses and paper filings is only growing larger.
More in the way of tax season pain points came with the changes to passthrough tax returns with the updated disclosures required on schedules K-2/K-3 also slowed down the filing season, with many preparers electing to file extensions until we could get our arms around the necessary due diligence.
Not only did these disclosures require in-depth conversations with our clients, but many tax software was not planning to release the actual forms until May or June at the earliest. To help aid efficiency, our practice started sending disclosures to clients with explanations of the regulation changes and asking them to review and attest to their applicability.
The biggest pain points this tax season, aside from no one being able to get answers from the IRS, were mostly related to reconciling pandemic relief programs.
Additionally, we recommend preparing passthrough returns while waiting for the schedules to be released to determine individual income tax liabilities prior to the April deadline.
As the March 15 deadline hit, the White House announced budget increases for the IRS and plans to hire 10,000 employees before the end of the year. The focus will be in many of the areas currently plaguing practitioners, including more staff to answer phones and lines dedicated to addressing issues with Advanced Child Tax Credits.
But skeptics are concerned about the department’s ability to bring on that many bodies and predict that at best, only about two-thirds of those hiring needs will be met. A review of open job postings for IRS positions shows the pay rates for experienced tax professionals are significantly lower than the market.
On top of not offering competitive wages, the hiring market overall is not conducive to finding necessary candidates. A recent survey by CNBC said that 52% of business owners are reporting that meeting hiring needs are harder than it was a year ago. President Biden recently approved a 6% budget increase to meet hiring needs for the Department but the Commissioner’s anticipation of clearly the backlog by the end of this year seems like a rosy outlook.
Speaking of the Administration, proposed tax law changes are back on the docket for 2022 as we watch this filing season come to a (sort of) close. With the number of extended returns expected to be higher than the 2021 season, Congress already is looking ahead to changes for the new year.
The Build Back Better Act that passed the House last November did not make it through the Senate but foreshadowed what the current administration is looking for in terms of future tax law changes. In addition to the new “billionaire tax” we’re expecting to see the corporate tax rate go back up for debate this year as well as taxes on capital gains and estate tax provisions.
It remains to be seen what will appear before Congress this year, let alone pass, but one thing is clear. The proposed changes by the current administration all point in one general direction, and that’s raising the income tax burden on wealthier individuals and top corporations.
Secondarily, a focus on foreign earned income and overall global income is forming, as evidenced by the K-2/K-3 requirements on 2021 returns. We expect to see continued scrutiny of foreign income and its related reporting requirements over the next year.
As we move past the tax filing deadline and into a new year, we will continue to monitor the changes, challenges and prospects ahead.
