That’s how Internal Revenue Service (IRS) Commissioner John Koskinen described the upcoming tax season to a group of tax practitioners at the AICPA National Tax Conference in Washington, D.C. earlier this month. Citing concerns about extenders, increased responsibilities due to the Affordable Care Act (ACA) and the Foreign Account Tax Compliance Act (FATCA), and cuts to the agency’s budget, the Commissioner told the crowd, “All we can do is try to maximize our services as well as we can; as well as we can is still going to be miserable. You really do get what you pay for.”
Since that announcement, nothing has changed. And that’s an even bigger problem.
Congress hasn’t moved forward at all with the extenders provisions. Extenders are those tax deductions and credits – about 55 of them – that expired as of December 31, 2013. If those provisions had simply expired, that would be the end of the story. But Congress keeps making noise about reinstating the provisions retroactively to January 1, 2014 – which would be fine if the plan was to reinstate all of them. But that’s not what is in the cards. Some in Congress have introduced bills to extend just one or two provisions while others have bunched some provisions together and ignored others. Some of the extensions would be for one year, others, two years; still others may be made permanent. So far, there’s no confirmation which provisions – if any – will be reinstated (or for how long) by Congress. And the clock is ticking. According to their own calendar, the House of Representatives has already left the Hill for November: they’ll return for just eight days in December before breaking on December 12, 2014. The new Congress will report to D.C. on January 3, 2015.
Commissioner Koskinen says that the IRS can’t wait that long. Together with Janet Novack of Forbes, I sat down with the Commissioner at his office in Washington, D.C., to talk about the challenges looming for the upcoming tax season. We asked about what the delay in passing a bill to deal with tax extenders might mean for taxpayers.
Confirming that he has been in contact with Congressional officials, including the Senate Finance and House Ways and Means leadership, the Commissioner said, “Clearly everybody recognizes that the later they make those decisions or the more complicated they are, the greater at risk filing season is… so I think I’m comfortable that they understand, appreciate and are concerned about that issue.”
But that doesn’t mean that we have any indication what’s going to happen – and that is problematic. By November, the IRS is generally in the throes of testing systems (you may remember that IRS shuts down their systems in mid-October each year to begin preparations for the upcoming tax season). The Commissioner had hoped to have word from Congress by mid-November in order to have everything “up and running and ready to go.” But word didn’t come. So what happens next? Exactly what you’d think: IRS has to begin making plans for a delayed season. Here’s what you should expect:
If there’s no word from Congress by December 1 – yes, that’s on Monday – you can likely expect a delayed start to the tax season.
If there’s no word from Congress by December 11 – about two weeks from now – tax season would absolutely be delayed, likely to the end of January 2015.
And then it gets more complicated.
If Congress approves the tax extenders without any changes by December 11, the result is that tax season would merely be delayed, again likely to the end of January.
If, however, Congress approves the tax extenders with changes by December 11, those changes would require re-programming of systems. The result? A switch to a tiered opening, a move that that the Commissioner acknowledges complicates the lives of taxpayers and tax preparers, as well as the IRS. A two-tiered opening means that some taxpayers can file when IRS opens its virtual doors in late January 2015 but those affected by the extenders would have to wait until the re-programmed systems are ready.
If you think you’re experiencing a little déjà vu, it’s not your imagination. In 2013, following tax law changes made in January 2013 as part of American Taxpayer Relief Act (ATRA), the IRS opened the filing season late – on January 30 – and implemented a tiered system. Under the tiered system, all taxpayers faced an opening delay to January 30, 2013, but those claiming certain provisions like the residential energy credits, depreciation of property or general business credits faced an additional delay and could not submit returns until late February.
That was a tough season. Combine the chaos of 2013 with the increased compliance challenges of ACA and FATCA together with budget cuts and it feels like a disaster.
Already, the Commissioner is anticipating that the IRS will only be able to answer about 53% of calls – after a wait time of about 34 minutes – for the upcoming fiscal year. That’s just about half – but, the Commissioner confirms, “It could be worse.”
The 53% estimate assumes an increase of 5-6 million calls, largely attributable to confusion over ACA and FATCA rules. But that number is just a guess. We haven’t had a filing season yet that addresses some of these questions such as how to deal with errors in calculating the premium tax credit for health care. The number of questions, and thus, the number of potential calls, could go higher: some estimates have placed the number of new calls at 11 million.
Up to 11 million more calls. 3,000 fewer workers just in the last year. You can do the math.
To make those numbers work, the IRS traditionally shifts resources – meaning people – to focus on filing season. That means, the Commissioner pointed out, more calls are answered, as a percentage, during filing season than at other times of the year. Last season, calls were answered about 71% of the time, a number the agency hopes to approach this year during filing season but that means that call answering rates at other times of the year could be below 50%.
And what about those calls that do get answered? Simple questions only. To keep call times short, IRS representatives have been instructed to answer simple questions and pass on the tough ones. So even though tax questions are becoming more difficult, fewer taxpayers will get complete answers. That’s not good for compliance.
It’s a concern echoed by the National Taxpayer Advocate, Nina Olson. Olson also sat down with us for a few minutes to talk about challenges for the upcoming season (she was running to a meeting to talk budgets). Her office is already gearing up for more volume as a result of ACA, FATCA and budget cuts which may result in “more problems, more confusion.” She’s hoping to mitigate some of the tax season troubles – including those specifically related to the premium health care tax credit – by identifying problems early. Despite these added preparations, the tax season could be, she said with a sigh, “Awful.”
(Author’s Note: This is part one of my conversations with the Commissioner and the Taxpayer Advocate. Find out more about the upcoming tax season, budget cuts, identity theft and what’s on tap for the future when the conversations continue.)