Hug Your Tax Professional, or The Upcoming Horrible, Miserable, Rotten, and Delayed Tax Season

A question I’ve been asked many times this month: When will the 2019 Tax Season (for filing 2018 tax returns) open? The answer I’ve given is, “I don’t know.” Normally by now the IRS has released the date. As of today, the IRS’s only comment has been, “It might not be in January [2019].” At a recent continuing education event speakers from the IRS implied that the 2019 Tax Season could be delayed–possibly significantly. My tax software company has no idea; many forms state “Final on January 28th” but that’s just a best guess on their part. Why? Because the IRS still has not released all of the final 2018 forms. For example, the link to Form 1040 takes you to the 2017 form. (You can find the draft of the new 2018 form here.)

There are two major issues and one minor issue delaying the release of the forms. First, the Tax Cuts and Jobs Act (TCJA) changed much of the Tax Code; this required the IRS to redo many of the forms to adapt to the new Code. The second major issue is that the IRS is no longer exempt from having rules and forms reviewed by the Office of Management and Budget (OMB). That review likely adds 30 days to the release date of anything out of the IRS. The minor issue is that the IRS decided to make the new Form 1040 a giant, double-sided postcard size with six subsidiary schedules, meaning there are seven new forms to be reviewed by OMB.

Some of the 2018 forms have been released. For example, you can find Schedule A, Schedule C, and Schedule D. But without a Form 1040, no one is filing.

Adding to the delay is that the IRS is slow in releasing the “Schema” for 2018 returns. This is the coding that tax software companies use to transmit returns to the IRS, so that what’s noted on (say) line 10 of Schedule C goes onto line 10 of Schedule C in the IRS’s records when a return is transmitted. In most years, there’s a 60-day period from the date of announcement of the schema to the date Tax Season opens; this allows the software companies and the IRS to test everything to make sure it all works. This means we could be looking at Tax Season opening on February 10th…if the schema were given to the software companies today. Of course, the IRS could shorten the testing period but it’s looking like the 2019 Tax Season will be compressed (perhaps significantly).

In our Engagement Letters for 2018 returns we’re adding the following:

The Tax Cuts and Jobs Act (the Tax Act) passed late in 2017 contains sweeping changes to the Tax Code. Given the magnitude of changes in the Tax Act, as well as some new concepts introduced in the law, additional stated guidance from the IRS, and possibly from Congress in the form of technical corrections, may be forthcoming. We will use our professional judgment and expertise to assist you based on the Tax Act guidance as currently promulgated. Subsequent developments issued by the applicable tax authorities may affect the information we have previously provided, and these effects may be material.

In particular, the Tax Act added a new deduction for Qualified Business Income (the Section 199A deduction). This deduction is generally available for taxpayers who have income generated from business activity, including Sole Proprietors (Schedule C). The calculation for this deduction is based on numerous factors. We may need to conduct an extensive interview with you, receive additional information from you, and/or spend extensive time in calculating this deduction. This may result in an increase in the cost of our services to you.

Beginning with the 2018 tax year, the IRS now requires S-Corporation shareholders who either reported a loss on their K-1, received a distribution (not including a salary or expense reimbursement), disposed of any shares of stock (or the equivalent), or received a loan repayment from the corporation to include a complete basis calculation with their return. We will need this basis calculation for your return (if applicable). If you do not already have this basis calculation, we can prepare it for you at an additional cost. To do this, we would need copies of all K-1s issued to you by the S-Corporation and details of your investments to and distributions from the S-Corporation.

These are just three issues. First, the law may change while we’re in the middle of preparing your return. Second, the new deduction for Qualified Business Income is very complex; this will add cost to many taxpayers’ returns. And third, the new rule on reporting S-Corporation basis will be a surprise for many taxpayers (and tax professionals). We’ve prepared basis schedules for the S-Corporation returns we prepare; however, many tax professionals omit these. These three items are guaranteed to add time and stress to return preparation.

So consider what tax professionals are dealing with:
– A delayed start to Tax Season;
– New tax law with many complexities;
– New tax forms; and
– Many more IRS/state non-conformity issues.

This is a recipe for a very high-stress Tax Season. That’s why I suggest you hug your tax professional; he or she will appreciate it.

Tags:

Leave a Reply