IRS kicks off official start of tax season

The Internal Revenue Service began accepting tax returns on Monday for this tax season, while the Treasury Inspector General for Tax Administration highlighted the results of last year’s tax season.

The IRS recommended on its website that taxpayers use the Tax Withholding Estimator to check if they have had the right amount of tax withheld from their paycheck, pension or other income. It will recommend how they should adjust their withholding for 2020 and provide detailed instructions to adjust their withholding with their employer or pension provider. Last year, many taxpayers complained about receiving smaller tax refunds, or owing more money than expected, because of the changes in the Tax Cuts and Jobs Act, which eliminated personal and dependent exemptions, among many other changes.

The IRS noted that combining direct deposit with electronic filing is the fastest way to get a refund. Different factors can affect a tax refund. The IRS cautioned to be careful not to count on getting a refund by a certain date, especially when making major purchases or paying other financial obligations. If taxpayers claim the Earned Income Tax Credit or Additional Child Tax Credit, the IRS cannot issue refunds before mid-February. (See IRS.gov/refunds for more information.)

Separately on Monday, the Treasury Inspector General for Tax Administration released a report on the results of the 2019 filing season. As of May 3, 2019, the IRS received more than 141 million individual income tax returns (with 90.4 percent electronically filed and issued more than 100.4 million refunds totaling over $274 billion.

However, the IRS faced a number of challenges for the 2019 filing season, TIGTA noted in its report, including implementation of the Tax Cuts and Jobs Act of 2017, a redesign of Form 1040, U.S. Individual Income Tax Return, and the partial government shutdown that lasted 35 days (beginning on Dec. 22, 2018, and ending on Jan. 25, 2019). Despite the partial government shutdown, the IRS began accepting and processing individual tax returns on Jan. 28, 2019.

In preparation for the filing season last year, the IRS updated its processes and procedures to address the Tax Cuts and Jobs Act and made changes to Form 1040. The changes included creating or updating 542 tax products, updating 128 information technology systems, developing and issuing guidance documents, and updating fraud detection systems. The IRS has made further changes in its forms this year, including asking taxpayers to report on Schedule 1 whether or not at any time during 2019 if they received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency.

“Virtual currency is an important addition to the 1040 this year,” IRS Commissioner Chuck Rettig said in a statement. “This emerging area is a priority for the IRS, and we want to help taxpayers understand their obligations involving virtual currency. We will also take steps to ensure fair enforcement of the tax laws for those who don’t follow the rules involving virtual currency."

While all taxpayers file Form 1040, taxpayers born before Jan. 2, 1955, have an additional option to use this year, a new Form 1040-SR, U.S. Tax Return for Seniors. Taxpayers age 65 or older will have the option to use this new form – either filing electronically or mailing a paper return − when they file their 2019 federal income tax return in 2020. Form 1040-SR generally mirrors Form 1040.

TIGTA’s review of 176 business rules and 34 error codes updated last year as a result of the Tax Cuts and Jobs Act and the Form 1040 redesign found that nine business rules (5.1 percent) and two error codes (5.9 percent) contained programming errors. These errors resulted in 28,411 e-filed tax returns being incorrectly rejected, 149 e-filed tax returns not being rejected when they should have been, and 222,154 e-filed returns for which processing was incorrectly delayed.

As of April 10, 2019, the IRS estimated that it received 1.4 million e-filed tax returns which included a claim for relief from the estimated tax penalty. In addition, on August 14, 2019, the IRS announced that it would automatically waive the penalty for more than 400,000 eligible taxpayers who had filed their tax returns but did not claim a waiver. The IRS plans to do the same analysis later in the calendar year to address any late-filed tax returns.

The IRS also updated Form 8867, Paid Preparer’s Due Diligence Checklist, to include the requirements for tax returns filing with the Head of Household status and returns with the Credit for Other Dependents claims. In addition, the IRS has set up some processes to identify tax returns for which Form 8867 is not attached when required.

Finally, TIGTA found that processes and procedures are needed to detect potential false deduction claims for unreimbursed employee business expenses, moving expenses, and casualty and theft losses.

TIGTA made 15 recommendations to the commissioner of the IRS’s Wage and Investment Division in its report. The recommendations include ensuring that business rules properly identify potentially erroneous tax returns and establishing processes to identify potential false moving expense deduction and casualty and theft loss deduction claims at the time tax returns are filed.

IRS management agreed with all but two of TIGTA’s recommendations and has taken or plans to take corrective actions.

“While delivering the 2019 filing season, we have also been preparing for the 2020 filing season,” wrote Kenneth Corbin, commissioner of the IRS’s Wage and Investment Division. “Additional forms and programming have been developed to complete implementation of the TCJA, addressing items that could not be completed in time for this season. Two new forms, Form 8995, Qualified Business Income Deduction Simplified Computation, and Form 8995-A, Qualified Business Income Deduction, were prepared and published for public comment. Both forms will be available for use with the tax year 2019 returns filed in 2020, and the programming that will use the data will be in place. This will permit a more thorough and complete evaluation of returns claiming the Qualified Business Income (QBI) deduction.”

Tax practitioners may also consider filing amended returns for their client for some prior-year returns since Congress recently passed legislation extending some expired tax breaks from recent years.

Andrew Harrer/Bloomberg