William Stromsem, CPA, JD
Assistant Professor, George Washington University
Depending on the fate of President Biden’s Build Back Better Act, major changes in the tax law could be coming and these will likely be passed late in the year because of political wrangling in Washington. With these changes, the IRS would have to develop new forms and instructions. Rulings and regulations would need to be promulgated or updated, as well as IRS publications explaining the new law. Return processing computers would have to be reprogrammed. Plus, adjustments would need to be made for any possible new advance payment credits for relief in the area of pre-K childcare or assisted living expenses, depending on the specifics of the final legislation.
Generally, the IRS needs several months to gear up for major changes and likes to receive legislative changes by the end of October, although in recent years e-filing has reduced the time to print and mail returns. In crisis mode, the IRS was able to deal with the Tax Cuts and Jobs Act of 2017 that was signed into law on Dec. 22, but this year is different because the IRS is still backlogged and short-staffed from the pandemic.
Recently, the IRS reported a backlog of nearly 17 million 2019 and 2020 Forms 1040, plus nearly 3 million 1040X amended returns. The IRS also had 2.3 million unprocessed employment tax returns and refunds and a major backlog in business returns dealing with changes in the CARES Act’s NOL limits. And the IRS continues to have limited human resources to deal with these tasks: retirement, changed lives and careers, a reluctance to interact with other employees in the office with the surge of COVID delta variant infections, a general labor shortage and so forth.
All this could spell trouble for tax professionals. Legislation late in the year could mean adjustments to year-end tax plans and the filing season could have a rough start. The IRS delayed the start of the filing season last year until Feb. 12, and that might happen again this year as forms and instructions are updated and as computers are re-programmed to process returns. Guidance may be limited and late, with many unanswered questions about the new law. While it would be nice to think that Congress will wrap up tax legislation on time for a more orderly tax season, this would not be consistent with Congress’ recent record of last-minute crisis legislation covering major issues. At this point, the legislation hasn’t been finalized, with issues like the state and local tax deduction limit still being discussed and critical votes needed for passage in the narrowly divided House and Senate.
Keep a weather eye on Washington and good luck!