So, How's That 2019 Tax Filing Season Going?
As most every reader of this newsletter is aware, the Tax Cuts and Jobs Act (TCJA) was passed into law in December 2017. Most of the provisions did not become effective until 2018, giving the IRS the opportunity to redesign tax forms, draft new instructions and publications, and publish needed regulations and notices. Meanwhile, tax practitioners would become educated on the nuances of all the changes and bring their clients up to speed. What could possibly go wrong?
Everyone involved with the process knew it would be a difficult tax filing season if everything went right. The TCJA represents the biggest tax law change in 30 years, and implementing it would be a challenge for all involved. Then beginning December 22, 2018 the IRS was struck by the longest government shutdown to date, lasting until January 25, 2019, only three days before the expected beginning of the 2019 tax filing season.
In trying to determine the state of affairs at the IRS, we obtained the National Taxpayer Advocate 2018 Annual Report to Congress. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS created under the Taxpayer Bill of Rights to help taxpayers resolve problems with the IRS and recommend changes that will prevent the problems. The report is required by statute to be filed by December 31, but because of the shutdown, the 2018 report was not completed until February 12, 2019-- not an encouraging sign. While the report is quite voluminous and deals with a variety of topics, we’ll look at three areas that could impact the current filing season.
Backlog of Processing
When the government shutdown ended, the IRS had over 5 million pieces of mail that had not been batched for processing and 87,000 amended returns waiting to be processed. In addition, the IRS’s National Distribution Center, which provides tax forms and publications, had a backlog of 170,000 orders including orders for Forms W-2 and W-3. The IRS announced that this backlog would not be cleared until mid-February, requiring employers to file for extensions with respect to information returns required to be filed by January 31.
IRS’s Failure to Answer the Right Tax Law Questions at the Right Time
Starting in 2014, the IRS implemented a policy to only answer tax law questions during the filing season-January through mid-April. In addition, the IRS designated certain tax law topics as out-of-scope, meaning it does not provide answers to taxpayers who call or visit the IRS inquiring about those issues. In anticipation of taxpayer questions concerning the TCJA, the IRS announced it would answer TCJA related tax law questions year-round. However, test calls to the IRS placed by the TAS revealed that IRS employees were not able answer even basic questions about the new tax law.
The Report’s #1 legislative recommendation deals with the IRS’s core information technology systems, which are among the oldest in the federal government. The IRS’s core system is based on 1960’s era programming with numerous patches and add-ons. The Report states “There are inherent limitations on the functionality of a 60-year-old infrastructure, and at some point, the entire edifice is likely to collapse.” The Report goes on to state that the IRS has been unable to replace the antiquated systems due to historic poor planning and execution and lack of funding. We are reminded of the April 17, 2018 crash of the IRS’s electronic filing system. The TAS recommends Congress provide multi-year funding to properly plan and execute a major replacement of the IT systems.
In fairness to the IRS, they were dealt a tough hand, exacerbated by the month long government shutdown. Much has been accomplished and an extensive amount of new guidance has been published. If you are fortunate enough to be able to file your 2018 taxes electronically without the need to contact the IRS, the process should be smooth. If you are in need of additional services, good luck.