The IRS expects more than 146 million individual tax returns to be filed this tax season, with the deadline only eight weeks from now, on April 15, 2024.
In the backdrop of an election year fraught with tension and a sharply divided Congress, many taxpayers are concerned about how this political uncertainty will impact their taxes.
For instance, at the end of January, the House voted to pass a $78 billion bi-partisan tax package that includes an expansion of the child tax credit and would also resurrect some tax cuts for businesses, including research and experimental expenses and small-business expenses.
Surprisingly, the legislation received broad support from each party: 169 Republicans and 188 Democrats voted for it. The bill is now in the Senate but facing an uphill battle from both sides.
Although tax forms have been finalized for 2023, and the IRS has already processed many returns, Congress still expects many changes to be retroactive to last year.
So, while we must wait to see what tax proposals will be signed into law, other significant developments at the IRS that may not have made it to the headlines could directly affect your tax filing this spring.
The IRS promises improved service
The Inflation Reduction Act (IRA) authorized $78 billion in supplemental funding for the Internal Revenue Service (IRS) through September 30, 2031. The IRS will use the funds to hire staff, improve service, update antiquated computer systems, and increase audits of high-income taxpayers.
For instance, the IRS has announced extended service hours in nearly 250 Taxpayer Assistance Centers (TACs) nationwide. Some will also be open on Saturdays. The “Where’s My Refund?” tool at https://www.irs.gov/ will add more details for taxpayers checking on the status of their tax refund, and online access now includes chat, the option to schedule and cancel future payments, revise payment plans, and validate and save bank accounts.
Possible Shutdown
Of course, all of the improvements at the IRS will mean nothing if they are forced to close due to a government shutdown that could happen in only two weeks. Congress must finalize the 2024 appropriations by March 1st and March 8th to avoid the shutdown.
IRS commissioner Danny Werfel stated that the IRS has never experienced a shutdown during filing season. If it does happen, all filing and payment obligations will continue, so taxes will still be due, and automated tax notices will still be issued. However, reaching help by phone or in person will be difficult, and most audits will be paused.
Disaster Relief
Last year, the IRS allowed taxpayers in California an extension of time to file and pay their taxes due to heavy storms.
This month, the IRS extended the same relief to victims of storms in Maine. It is likely that if the extreme weather conditions continue across the country, other counties and states will also be granted relief. If your area is hit hard this winter or spring, pay attention to news on this topic or ask your tax professional about possible extended due dates.
Penalty forgiveness
To help people who owe back taxes, the Internal Revenue Service announced $1 billion in new penalty relief for approximately 4.7 million individuals, businesses, and tax-exempt organizations that were not sent automated collection reminder notices during the pandemic.
Starting next month, the IRS will issue a special reminder letter to alert taxpayers of their liability, easy ways to pay, and the amount of penalty relief if applicable.
File your taxes for free
The new IRS Free File Program is a public-private partnership between the IRS and tax preparation and filing software companies. The service is free to qualifying taxpayers with $79,000 or less adjusted gross income. Go to https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free for more information.
Don’t shred those old returns just yet
When clients ask how long they should retain tax documentation, they are generally told that the IRS can examine their returns for three years.
In a Tax Court Memorandum (24-10) issued last month, a judge clarified that the three-year time limit for an audit disappears when the taxpayer files “a false or fraudulent return with the intent to evade tax.” I.R.C. § 6501(c).
In 2019, the IRS issued a notice of deficiency to a taxpayer concerning returns they had filed many years earlier for the 1993–99 tax years. Although the taxpayers did not intend to evade tax, their tax return preparer did. The court stated that filing false or fraudulent returns by a preparer intending to evade tax was sufficient to trigger the indefinite time to assess tax on the taxpayer. It did not matter that it was the tax preparer’s fault: the three-year statute still did not apply, and the taxpayer was liable for the tax.
Based on the tax court decision, finding a safe place to store your tax documents indefinitely might be a good idea. The tax court memo also reinforces the importance of hiring a qualified tax professional and emphasizes that taxpayers are responsible for what is filed on their behalf, and they should review and understand the tax returns they are signing.
If this seems too much to handle right now, don’t worry! You can always file for an automatic extension on April 15, 2024. Then, you would not be required to file until next fall, by October 15, 2024. Also, if Congress makes retroactive changes, you will not have to amend your returns.
Remember that any tax liability is still due by April 15th, so estimating your liability and paying the balance is a good idea if you think you owe. Go to https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return if you need an extension form, or call your tax professional and ask them to file an extension electronically on your behalf.
Michelle C. Herting is a CPA, accredited in business valuations, and an accredited estate planner specializing in succession planning and estate, gift, and trust taxes.
