That Was the Tax Season That Was

Well, my sixteenth Tax Season is in the books. Let’s see what was good, bad, and ugly–and I’ll include a warning for next year.

The Good: First, the IRS did a much better job with the Practitioner Priority Service (PPS). PPS is how tax professionals primarily interface with the IRS. During 2015, hold times were one hour or more…and that was on the good days. What a difference a year makes: In 2016, there were times the hold time was zero. For all the problems the IRS has, kudos on this issue.

And let’s give a thumbs up to Congress–yes, Congress. We had tax legislation for “extenders” that covers not only 2015 but 2016. I know what taxes are for the current calendar year…and it’s not December!

The Bad: Late, late, and later arriving paperwork for clients. Very few K-1s (what partnerships, S-Corporations, and trusts/estates issue) arrived timely. Congress changed the due dates for partnerships to March 15th for next year with the hope that recipients of K-1s would receive their K-1s earlier. Most tax professionals believe (and I agree with them) that all the moving of the due date will do is cause more partnerships to file extensions. Indeed, I expect K-1 paperwork to be even later next year; more, not less, individuals will be forced to file extensions.

The Ugly: I had more and more procrastinating clients. Some of it wasn’t the fault of the clients (again, lots of late arriving paperwork), but some of it was. I’m not happy with the “twin peaked” curve of work that I have. Further, the trends aren’t good for it getting any better next year.

And that’s where the warning for the 2017 Tax Season comes in. Next year there are expanded “due diligence” requirements on tax professionals. This has impacted the Earned Income Credit, but it (a) expands to include the American Opportunity Credit (an education credit) and (b) the Child Tax Credit. Congress, in the PATH Act, mandated this:

The PATH Act also extended due diligence requirements to returns claiming the Child Tax Credit (CTC) and the American Opportunity Tax Credit (AOTC). Last year due diligence only applied to EITC. See “Paid Preparer Due Diligence Penalties” below for information on how IRS can assess penalties.

The draft Form 8867 and draft instructions are available. Something new for next year is that tax professionals not only need to get answers to various questions, we apparently must conduct an interview with the client. That means talking to the client. Consider Joe Taxpayer who submits his paperwork on October 10, 2017. You get to his return on the 14th and discover you need to talk to the client because he’s receiving the Child Tax Credit. There’s an obvious issue with that. Also consider that a typical interview is, say, ten to fifteen minutes. Assume you have 50 clients who need to be interviewed during the year; that’s an additional 500 minutes or eight hours of work. If you have 100 clients who qualify, that’s an additional sixteen hours of work. And there’s scheduling time. And yes, it appears the interview is mandatory.

That’s the warning for 2017: Taxpayers who procrastinate too long may run into an issue with their returns. Tax professionals have even more work coming up. Will tax professionals add an up-charge for this interview and compliance requirements? I’m certainly considering it.

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