Internal Revenue Service Commissioner Danny Werfel described the 2024 tax filing season, at least from the IRS perspective, as "one of the best tax seasons."
Increased funding from the Inflation Reduction Act permitted the IRS to add 5,000 new telephone customer service personnel, launch a trial direct file program, and generally improve customer service in a variety of areas. The IRS also launched several initiatives to bring a larger number of higher-income taxpayers into compliance with the tax system. Some of the potential issues complicating the tax filing season were addressed by postponing certain requirements.
Returns filed, refunds issued, and taxpayer services increased
The number of tax returns filed with the IRS increased slightly from the 2023 tax filing season and the amount of refunds issued increased slightly from 2023. The tax season began and ended on time. '
The IRS highlighted an increase in calls handled by operators by 16.8%, although it is not clear whether "handled" means only that the call was answered or also that the question was addressed. There was some concern that the newly hired personnel answering the phones may still need additional training. The IRS reported a decrease in call wait times and increased call back options.
Services at various taxpayer assistance centers and use of IRS.gov also increased. The agency also launched a program to standardize and simplify IRS notices to make them easier for taxpayers to understand.'
New clean energy credits
Often new tax provisions complicate tax returns being filed. The Inflation Reduction Act created many new and expanded tax breaks related to clean energy that included a variety of new compliance rules, most of which became fully effective in 2023. From the perspective of tax return preparers, these new requirements likely resulted in some additional complexity for tax return preparation and perhaps an additional number of extension filings.
Waiting on Congress
Hanging over the 2024 tax preparation season was the issue of whether Congress would enact some version of the Tax Relief for American Families and Workers Act. Provisions that would have been retroactive to 2023 included those with respect to the Child Tax Credit, deduction of research and experimentation expenditures, extension of 100% bonus depreciation, and the limitation on the business interest deduction. This may have resulted in the filing of some tax returns being delayed or even an extension being filed.
With the tax season now over and Congress still not having enacted the legislation, retroactive application of at least some of these provisions becomes less likely.
1099-K
Also hanging over the 2024 tax filing season was the issue of whether there would be millions of additional Form 1099-Ks filed by third-party payment processors that tax return preparers and the IRS would have to deal with. These could also include 1099-Ks for personal, nontaxable transactions and 1099-Ks for the same transactions also addressed in 1099-NECs and 1099-MISCs.
The IRS avoided this issue for the 2024 filing season by postponing the expanded filing requirements for another year. This may also give Congress an opportunity to adjust the scope of the filing requirements through additional legislation.
Direct File
The Inflation Reduction Act allocated funds to the IRS to study the feasibility of taxpayers directly preparing and filing returns with the agency. For the 2024 tax filing season, the service launched a trial direct file program available to certain taxpayers in 12 states — those states without a state income tax and an additional four states that permitted their state income tax to be part of the Direct File program.
The IRS evaluated the trial as a success — meeting its goal of handling over 100,000 directly filed returns with generally positive feedback from participants. Still to be evaluated is a cost/benefit analysis of the program and whether it will be extended to future years.
Compliance
Although not always directly impacting the 2024 tax filing season, the IRS also used funding from the Inflation Reduction Act to launch or expand a number of taxpayer compliance initiatives:
- The service collected $482 million from 1,600 millionaires evading taxes.
- It launched 80 audits directed at individuals evading self-employment taxes by claiming limited partner status.
- It is auditing 76 of the largest U.S. partnerships which have an average of more than $10 billion in assets.
- It is investigating ghost employers that collect employment taxes from their employees but do not forward the funds to the IRS.
- It is investigating many claims for the Employee Retention Credit from the COVID years for failure to meet the requirements for the credit.
- It once again revised the digital asset question on the tax return but also delayed for a year expanded Form 1099-B reporting of transactions in digital assets. The service continues to seek information on digital transactions through subpoena authority.
- It is investigating 125,000 cases where taxpayers have not filed a tax return since 2017, including 25,000 with incomes of over $1 million and 100,000 with incomes of between $400,000 and $1 million.
- It is investigating abuses in the allocation of corporate aircraft usage between personal and business-related travel.
Summary
Compared to the tax filing seasons during the COVID years, with IRS partially closed down and underfunded, and tax return preparers working remotely, dealing with COVID provisions like Economic Impact Payments and advance payments of the Child Tax Credit, and delayed starts and ends to tax filing seasons, the last couple of tax filing seasons have seemed relatively normal by comparison. Still, the Tax Code overall continues to increase in complexity in spite of the frequent discussion of tax simplification.
