The 2024 filing season, which began with a hint of uncertainty, has progressed into one of the smoothest in recent memory — but the uncertainty still exists, fueled by court decisions and pending legislation.
The legislation was "pending" at the beginning of filing season and is still pending, while court decisions called into question the Corporate Transparency Act, which, although not a tax issue, is front and center for many accountants that deal with small businesses which come under the purview of the act's beneficial ownership information reporting requirements.
Accountants are hesitant to become involved with questions regarding BOI reporting; depending on the jurisdiction they may be charged with practicing law without a license, since they are called on to interpret definitions under the act as to beneficial ownership. Despite this, they routinely are expected to interpret the complexities of the Internal Revenue Code and have done so for decades without the benefit of a law degree. Add to this the fact that their professional liability insurance may or may not protect them — again, depending on the jurisdiction in which charges might be brought against them.
The American Institute of CPAs, in a letter dated April 3, 2024, to Treasury Secretary Janet Yellen and the director of the Treasury's Financial Crimes Enforcement Network, Andrea Gacki, voiced its concern that small businesses will be caught off guard with the new filing requirement, and failure to file could result in steep civil and criminal penalties.
"The recent NSBA v. Yellen court case which found the Corporate Transparency Act to be unconstitutional has only compounded confusion, with most entities believing they no longer have a furling requirement," said the letter.
"Based on these strong concerns," the letter continued, "we ask that you suspend all enforcement actions until one year after the conclusion of all court cases related to NSBA v. Yellen, and further believe that FinCEN should take no retroactive enforcement for non-compliance during this time. The portal can remain open, and small businesses may voluntarily report BOI, but no small business should be compelled to file nor should any small business face enforcement for failure to comply until after the courts have worked through this complex case."
Failure to address the situation will lead to "rampant noncompliance" in the small-business sector, according to Roger Harris, president of Padgett Business Services. "And it will not help us catch money launderers or child traffickers."
Still in limbo
Still pending is the Tax Relief for American Families and Workers Act of 2024, which passed in the House. It contains taxpayer-favorable alterations to the Child Tax Credit and a trio of lapsed business provisions: bonus depreciation, research and experimental expenditures, and the business interest deduction limitation, and is awaiting action in the Senate. The general feeling is that the TRAFWA will be "pending" all the way through the November elections, but will eventually pass in one form or another.
Depending on the client, this could be a pretty significant delay, according to Ryan Losi, executive vice president of Virginia-based CPA firm Piascik.
"It has caused heartburn for some companies in the tech industry or pharmaceuticals," he observed. They have to capitalize expenses rather than include them as deductions, which can make the difference between making a profit or paying tax on taxable income that doesn't exist. It was supposed to pass in February, but Republicans held the bill up because of immigration issues. Now, it looks as though nothing will happen until after the election. So maybe tax season won't be so smooth because you have to file based on current law, not what you think it will be."
"Things started to normalize in late February when people recognized that maybe the tax bill would not pass that quickly, and the IRS said not to wait, that they would fix refunds automatically if the bill passed," he added.
Filing season statistics show that "do-it-yourselfers" were up by 1% over a year ago, as of March 29, but that's probably not entirely accurate, according to Mark Steber, chief tax officer at Jackson Hewitt. "The IRS is increasingly concerned with 'ghost preparers,' those who prepare a return for a fee but don't sign the return," he said.
"The IRS has seen repeat self-prepared returns coming from the same address," he remarked. "In some cases, the taxpayer doesn't even know that the person sitting next to them in a tax pro's office doesn't even work in the office — they pull out their computer, ask a few questions and agree to meet at a Starbucks around the corner."
Looking forward
Other than these few issues, the season has been smooth. But it may be the last for a while, according to Steber. "A new 1099-K, the presidential election, expiring Trump provisions all converge, so we may have seen the last of the "normal" seasons for a while," he said.
This is an election year and even though tax season is nearly behind us, Congress might make retroactive changes which they may instruct the IRS to implement, or some returns might have to be amended to receive benefits, according to Tom O'Saben, director of tax content & government relations at the National Association of Tax Professionals. "Pay close attention to the news," he advised.
April is filing extension time, according to Losi. "Our cutoff is March 25. If they don't have all their information together by then, they'll have to extend," he explained. "We're in the process of contacting all our clients with large items and will try to get a sense of the taxes they paid in prior years. If the client is in a refund situation, we can file the extension easily and electronically and without needing more information. Or if they have a balance due, we have to decide how much is due. If it's a large balance due, we have to decide how to pay it. Most have their money tied up in illiquid assets, so they might have to give it a tweak or two."
Wrapping up
The filing season began with tax professionals thinking they had lost clients to the new IRS Direct File, but they were only waiting in the wings, according to Beanna Whielock, former IRS director of national public liaison, and now executive director of Tax Pro Fellowship.
"Taxpayers hate taxes. Only if they think they are getting a refund, rebate CTC or some other funds do they get in early to file," she said. "Most have owed, either because they took a second job to make ends meet and were insufficiently withheld or they followed IRS guidance on completing the Form W-4 and were underwithheld. Then the taxpayers who did strange things began to come in. While only energy credits seemed to be a saving grace, they were few and far between because people are hurting in the economy."
With the end of the season in sight, overall it's gone pretty well, according to Harris.
"There have been some minor hiccups here and there, but compared to most recent filing seasons it's been relatively smooth," he said. "The problem every year has been late 1099s, and it seems as though there are more corrections this year than in the past. For example, people don't realize that their financial advisor has invested their money in a limited partnership with an ownership interest in an oil well in Oklahoma. They bring in all their information at the end of March, get their return filed and then show up two weeks later with the additional information. Or they might leave it for the IRS to fix, since the preparer might cost more than the tax that is due. It's frustrating, because it creates additional work for the preparer and for the IRS."
Tax season 2024 has mirrored last tax season in that it felt like "business as usual" — essentially what tax season has typically been like, according to Jim Guarino, managing director at Top 100 Firm Baker Newman Noyes.
"One of the larger surprises was the increase in overall investment income, especially in terms of their interest income and U.S. government interest," he said. "Interest jumped during 2023 and individuals were the recipients of this increased interest income, but it led to smaller refunds or a balance due on retirement account values at December 31 of the preceding year."
"Tax professionals at this time of year have come to appreciate one general rule of thumb: Expect the unexpected," he concluded. "Living by that mantra helps us to navigate and weather the storm that is certain to come every January."
