The 2023 filing season might go down in history as one of the best ever, according not only to IRS managers, but to tax professionals and advisors as well.
“The Internal Revenue Service is celebrating the strongest tax season in a very, very long time,” said executive director Chad Hooper of the Professional Managers Association (a national membership association of IRS managers).
“Wait times are down. Service levels are up. And return processing is only getting faster,” he explained. “This season is a clear demonstration of how an agency can turn itself around with investment and attention from Congress. After nearly a decade of budget cuts, a global pandemic, and many years of disruptive mid-season tax changes, this tax season shows what the IRS can achieve with the resources and space to do its job.”
“It was one of the smoothest seasons ever,” agreed Mark Steber, senior vice president at Jackson Hewitt. “There were minimal issues, so there were no backlogs or delays for the whole season. Not during the shakedown cruise at the beginning, all the way through to the surge at the end — and there was a surge at the end. But the IRS was prepared, the industry was prepared, and it went just as you would like it to go. We were a little nervous after the first 10 weeks, thinking something was going to happen in late March, but it continued to go smoothly.”
(See “Tax Season 2023 by the numbers.”)
There were many reasons for this, according to Steber: “The IRS staffed up, to be sure, and there were not many tax changes. Refunds were smaller, as we expected, and there were also more balance-due tax returns, as was also expected. Many of the balance-due returns were from self-employed individuals. Refund disappointment was partly due to the fact that people used last year’s amount as a gauge as to what they expected this year.”
One anomaly, according to Steber, is the number of professionally prepared returns compared to self-prepared returns. For the week ending April 14, 2023, compared to the week ending April 15, 2022, while the total number of e-filed returns was less in 2023, the number of professionally prepared returns was down by only 2.4%, while the number of self-prepared returns was down by 5.8% (the numbers are incomplete since filing season for 2023 ended on April 18).
“It’s not shocking because taxes are complicated, and life is complicated,” observed Steber. “The dollar figures have never been more consequential — if you miss a credit or leave off a deduction, it makes a big impact. The IRS does not have a process in place to find taxpayers their biggest refund.”
‘Almost like business as usual’
The filing season was somewhat of a return to normalcy, remarked Tom O’Saben, director of tax content and government relations at NATP, the National Association of Tax Professionals.
“There were no contingent payments to reconcile — it was more like the pre-pandemic seasons,” he said. “However, we’re still doing 20% of our returns remotely. Taxpayers found that to be very convenient during the pandemic.”
“We didn’t see a great deal of difference in refunds, since many taxpayers that had taxable gains in 2021 had capital losses due to the down market in 2022,” he added. “There was more understanding about digital assets regarding the ‘yes or no’ question on the return. The IRS has done a good job in educating taxpayers on that.”
O’Saben’s measure of tax season success is the number of people who don’t call about their refunds. “By that standard, it was a resounding success,” he said. “It was almost like business as usual. That’s a lot to be said for the IRS, given the mountain they had to climb. The time to process amended returns for 2021 returns was measured in months — this year it was measured in weeks. Amended returns are submitted electronically, but they have to process them manually.”
Preparers might look at some issues during the “cleanup” period after the end of the season, O’Saben suggested. “One is the issue of state rebates. The IRS said that in most cases they aren’t taxable, but those notifications came out toward the end of February, so some took the conservative approach and included those rebates in income. The IRS suggested that those returns be amended.”
The other issue to be aware of is the state SALT cap workarounds, he noted. “More than states have these. Preparers should examine the state K-1s and make sure that they didn’t overlook a credit.”
Of course, the end of tax season is the beginning of filing extensions. Bill Nemeth, president and education chair of the Georgia Society of Enrolled Agents, has 40 returns now on extension.
“I’m waiting until until early June to access these taxpayers’ 2022 Wage & Income data to confirm that I can file a complete and accurate return with all the information reported to the IRS (W-2, 1099 NEC, 1099-B, crypto activities which taxpayers often forget to tell me about, 1099-R, and IRA rollovers),” he said. “I will pull 2022 return transcripts on all the returns I filed this year and compare the income items reported on the filed tax return to the income docs reported to the IRS, and flag those which are ‘missing’ income documents. This allows me to review any discrepancies and perhaps file a voluntary amended return months before the IRS [Automated Under Reported] Unit issues a CP2000 notice for missing income.”
Nemeth has several elderly taxpayers who are in the early stages of dementia. “I use their IRS Wage & Income transcripts to get enough information to prepare and file their returns, since they are not providing me with any of their income forms. In some cases, I actually have to pull their IRS transcripts to calculate their required minimum distributions, which I forward to the responsible family member.”
Beanna Whitlock, executive director of NCPE Fellowship and former IRS director of public liaison, noted that this year that taxpayers did a number of things without talking to their tax professional, and were surprised at the taxes they owed. “They sold property, cashed out of stocks, and sold assets because they needed the money,” she said. “Then they were surprised that those depreciated assets gave them income when they were sold.”
She also noted an instance of clients with highly creative tax strategies: “One of our members called to tell me he had two brothers who had come to the U.S., each unmarried but with three children each. They each put their children up for adoption and then adopted each other’s children. They wanted to take the Adoption Credit, the Earned Income Credit and the Child Tax Credit. He refused to do their returns, and said it was the best money he never made.”
Despite the improvement in filing season, it never seems to get easier, according to Jim Guarino, managing director at Top 100 Firm Baker Newman Noyes.
“Instead, each year brings with it a new set of challenges that require tax professionals to adapt. I am a firm believer that we must discard our ‘been there, done that’ attitude at the start of tax season and embrace a ‘what do I need to know for this tax season’ attitude. From that standpoint, this tax season was no different than any other for me — humbling.”
A prime requisite to experience a smooth tax season is time management, Guarino observed: “This does not always translate to a sufficient allocation of time toward staff training and development. It then becomes a bit of a Catch-22. Focusing solely on tax return turnaround time can negatively impact staff development and hinder a firm’s ability to develop its next generation of leaders.”
Time management is more critical than ever, agreed Roger Harris, president of Padgett Business Services.
“For years it was a badge of honor to brag about how many hours you worked,” he said. “Right now, post-COVID, people are not going to work in a firm like that or buy a firm like that. It’s not good for your family or your health. It’s incumbent on us to change that as an industry and individually.”
Guarino’s private client service group adopted a set of tactics to meet the time management challenge while training the next generation of tax advisors.
“We assigned each senior staff a limited number of clients to manage during tax season,” he said. “Their responsibilities included becoming the point person for client contact, assigning tax preparation to preparers, and doing a detailed review of the return before sending it on for partner approval. They took on this role in addition to their own tax preparer responsibilities. The engagements assigned to them were arguably lower risk or less complicated, but they were still required to ‘manage’ each engagement. In effect, we implemented a CPA firm’s version of a teaching hospital environment for our next generation of tax managers.”
Harris noted that it can take longer to do taxes by computer today than it did when everything was done by hand: “If technology is really improving our lives we should be working about 10 hours a week. All we’ve done is find ways to stretch the work out.”
“Is working 80 hours a week really the norm? We have to find ways to make our firms more attractive to work at, and ultimately to purchase,” he concluded.