Contrary to initial predictions, this year’s filing season has progressed smoothly during its first weeks — but keep your fingers crossed.
In announcing the start of filing, the Internal Revenue Service itself warned of complexities that will be faced regarding Economic Impact Payments or advance Child Tax Credits taken last year, and the issues caused by the ongoing backlog in processing returns. And the National Taxpayer Advocate highlighted how delays in processing Form 2848, “Power of Attorney and Declaration of Representative,” and Form 8821, “Tax Information Authorization,” may cause delays and violate taxpayer rights.
But in the early stages of filing, all is well, according to professionals.
“Everything’s going according to plan,” said Mark Steber, chief tax officer at Jackson Hewitt. “There’s been very little surprise or drama. The IRS is processing returns as expected with no urgent system-wide updates.”
Some tax professionals are anecdotally complimenting the IRS for its handling of potential problems over the phone. After some early-season confusion on the part of some preparers over new Schedules K-2 and K-3, a quick phone call to the Large Business and International Division solved the issue for Beanna Whitlock, of Whitlock Tax Services and executive director of the National Center for Professional Education Fellowship. “International got it right. They were fabulous,” said Whitlock, a former director of national public liaison at the IRS.
Likewise, Jim Guarino, managing director at Top 100 Firm Baker Newman Noyes, was put on hold when he called the IRS for his “toughest client” — his mother-in-law. “The recording said my call would be answered in 15 to 30 minutes, and I was speaking to a representative within 29 minutes,” he said.
Steps forward
In response to a coalition of practitioner groups led by the American Institute of CPAs, the IRS has announced that it is suspending the mailing of more than a dozen additional letters, including the mailing of automated collection notices, which are normally issued when a taxpayer owes additional tax and the agency has no record of a taxpayer filing a tax return.
“These mailings include balance-due notices and unified tax return notices,” the service stated. “The IRS entered this filing season with several million original and amended returns filed by individuals and businesses that have not been processed due to challenges of the historic pandemic and is taking this step to help avoid confusion for taxpayers and tax professionals.”
The IRS has sent letters regarding the advance Child Tax Credit. “Taxpayers that received these letters really need them to complete the filing process and get their money,” said Steber. “The same goes for the Recovery Rebate Credit or Economic Impact Payment letters. They’re especially important if the taxpayer is due more money, and to help clarify if they’re not due more money. Also the [Affordable Care Act] premium tax credits. We’re asking preparers to make sure they have that information. There’s a lot to watch, but we’ve trained all year for this, and have communicated with taxpayers to bring in any communications from the IRS.”
Steber doesn’t support an extension of the filing season: “We don’t think that helps any taxpayer. We do, however, support the suspension of collection of notices and collection activity. That’s not a bad thing while we’re in COVID land.”
He noted that in the early stages of tax season he’s seeing bigger refunds. “It stems from the higher Dependent Care Credit and the Earned Income Tax Credit, especially for those with no children. And there are larger claims for the Child Tax Credit that were not prepaid, including new babies born or adopted and fostered in 2021. It’s not a big surprise, since taxpayers who are due these amounts know it, and tend to file early. Also, those parents with shared custody know it’s their year for the credit. We expect this to level off over the next few weeks.”
Guarino, an optimist, sees the filing season as a glass that’s half-full. “I’m optimistic, but it’s as if I’m driving. My eyes are all over the road looking for potholes because I know they’re out there,” he said. “The reason I’m more optimistic than the past two years is that we know there will be challenges, but at least now we have a pretty good idea of what those challenges will be. Two years ago at this time, we had no idea what was about to hit us.”
One of the roles that preparers are hesitant to fill is that of the bearer of bad news. It may be necessary this filing season, as younger taxpayers with children in many cases received more in Child Tax Credit than they were entitled to, and need to pay some of it back, Guarino warned. “It might be unpleasant, but at least we know in advance and can educate our clients in advance,” he said.
“In our business, it’s all about being proactive,” he said. “Our clients want us to be thinking ahead of what we want them to do about tax compliance. The last couple of years we’ve been in a reactive situation for our clients, and it was a challenge to service them the way they would like. Now we’re in a better situation to be proactive on their behalf.”
Fewer changes
After waiting all of 2021 for tax law changes, all that happened was the November 15 Infrastructure Act, Whitlock noted. “All that it did regarding taxes for this year was take away the Employee Retention Credit for the fourth quarter of 2021,” she said. “Every other change was by presidential order or the IRS. But Congress can do whatever it wants, whenever it wants, so we’re waiting for the other shoe to drop.”
“If the preparer is uncertain whether new Schedules K-2 and K-3 are necessary, they should include them because the penalty is so severe,” advised Whitlock. “If the preparer makes a good faith effort to complete the form correctly for 2021 taxes, the penalty will be waived, but there will be no waiver if there is no attempt to deal with it correctly.”
Bill Nemeth, executive director and education chair of the Georgia Association of Enrolled Agents, recommends that preparers obtain disclosure authorization from their clients. “I have it for every one of my clients,” he said. “If you set up an account, you can go into their transcript and see what they have — you can predict an audit up to a year in advance.”
If the transcript has a transaction code of "420," it is flagged for possible audit, according to Nemeth. “It’s not 100 percent certain, because they flag a lot, then look at the inventory and pick the ones they think they have the best shot at,” he said. “I’ve seen ones that were flagged for audit, and a week later the transcript had a Code 421, which means the audit was closed. It’s an additional service preparers can do for their clients, and one they appreciate.”
