Where is IRS Headed?
By April 25th of this year, the IRS had processed 127,710,000 tax returns, a 1.8% increase over the same period in 2013. We historically think of busy season and workload compression as issues and challenges facing the return preparer community. However, the recent tidal wave of regulatory changes, legislative delays, and the increasing complexity in the financial needs of the average taxpayer, compounded by budget cuts and increasing reliance on the tax system to enforce non-tax programs, are combining into the perfect storm.
While this may not seem like anything new to those tax practitioners who have been around for years, the reality is that IRS resources are severely constrained. Here are just a few examples:
In the past two years, IRS and Treasury have released significant new regulatory guidance (e.g., tangible property regulations) and enforcement regimes (e.g., FATCA reporting and FBAR OVDI programs), often with little time between release and effective date.
Leveraging the IRS as a Mechanism for Non-Tax Initiatives
The IRS has been tasked with administering the Affordable Care Act. What started as a legislative initiative to create universal healthcare has morphed into a complex web of tax credits, deductions, penalties and reporting. They are scrambling to issue guidance, finalize tax forms, and inform taxpayers who are trying to plan for how this new law will impact their tax returns.
Reduced IRS Services
As a result of budget cuts, IRS eliminated two e-Services products, closed walk-in service centers, and cut service hours for many call centers. Last fall, the IRS lost 16 critical days during the government shutdown, which delayed programming, preparation and systems testing. More and more examinations are being conducted as correspondence audits and wait times on phone lines can be upwards of 45 minutes to an hour. Even online tools and services (e.g., OPA and Where’s My Refund) have reduced availability. So, more and more services require an in-person interaction with IRS at a time when they are operating with fewer trained staff.
These challenges remind me of the government’s version of the workload compression we have become all too familiar with. It looks like practitioners will once again have to guide their clients through the planning process without final answers on which tax provisions will be extended and navigate another filing season with reduced IRS service levels. It will be critical for tax practitioners to acknowledge these constraints and be prepared to work differently than in the past. To help manage client expectations and reinforce your value as a tax practitioner, CPAs should share constructive concerns about these IRS issues with their clients, so they realize that you are playing a critical role in shielding them from anxiety, frustration and confusion because of IRS administrative issues and resource constrains. It is always a good idea for CPAs to give their clients a message of “we are in this with you” to help keep them focused on you as their trusted tax advisor.
Tax Complexity – Isn’t Just Tax Law Change Anymore
By Cari Weston, CPA, CGMA, Senior Technical Manager – Taxation, AICPA
As we look outside and begin to feel the brisker night air and the first hints of the changing colors, we realize that fall is upon us. This means the year is coming to a close and most tax practitioners will be finalizing those last individual returns, scheduling yearend planning meetings and preparing for the upcoming tax season. While this is standard practice, the difference for many lies in just how some of these annual tasks will be completed with the lack of clear direction.
On September 15, 2014, AICPA sent a letter to Congress urging them to “immediately address the fifty-seven tax provisions that expired at the end of 2013 and the six tax provisions that expire at the end of 2014.” Unfortunately, as this is an election year, it is unlikely that they will take any action before the end of the year. This means that tax practitioners will need to leave room in their January calendars to quickly get up to speed on any last-minute developments, regulations, forms and instructions – something we’ve seen more and more over the past few years.
To some degree, this constancy of change is just part of the business. After all, it is an inherent part of the system that tax laws keep changing. Keeping up with the changes can be a daunting challenge. In fact, “keeping up with tax law complexity” is a standard phrase. However, there is another side to complexity that we are seeing more and more, but haven’t heard many people talking about… at least not yet. Perhaps it is time to start framing the challenge as “keeping up with tax complexity” (in case you didn’t notice, the word “law” is deleted from that phrase) and start looking at this issue a little differently.
The aging of the population is driving a subtle but fundamental shift in core tax services. Today, Jane and Joe Taxpayer are finding themselves sandwiched between aging parents and young children. As a result, their tax return impacts more than just how much they’ll owe or get back as a refund. Their day-to-day financial transactions have tax implications – such as planning for retirement and college, managing the finances for blended families, and more. A "simple" return now includes issues that, 15 years ago may have been limited to the more sophisticated client, such as education credits, self-employed retirement plans, adoption credits, energy credits and the alternative minimum tax. Even navigating dependency deductions and exemptions can be challenging - particularly for blended families. This means that more time is needed year over year, just to prepare the same returns.
In an environment of increasing client complexity it will take more than technical expertise to be successful. Practitioners who are thriving despite increases in workload compression, reduced IRS services, delayed legislation and increased marketplace competition are doing so because they have stopped fighting the inevitable and are learning to roll with the punches. They no longer just do whatever they did last year. They recognize that they need to adapt not only to the changing technical environment, but also to the complexities in the clients they serve and the business environment in which they operate. They focus on running a better, smarter, more modern business, making do with less, and proactively looking for ways to improve.