What to Expect in the 2024 Filing Season

This transcript has been edited for length and clarity.

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: Season's greetings.

The U.S. individual tax filing season opens on January 29, and with it comes new tools and complications. The IRS has been working on modernizing and updating many of its systems to help taxpayers and tax professionals during this season.

However, as of this recording, Congress is working on a tax deal that could throw a wrench into the current tax law, forcing the IRS to adapt mid-filing season. So what should we expect this year?

Here to talk more about this is Tax Notes senior reporter Jonathan Curry. Jonathan, welcome back to the podcast.

Jonathan Curry: Hey, Dave. Good to be back.

David D. Stewart: Now, I understand you recently talked with someone about this. Could you tell us who you talked to?

Jonathan Curry: Yeah, so I had the pleasure of talking with Kelly Phillips Erb. She is the managing shareholder and co-founder of Erb Law Firm, and she's perhaps best known as Taxgirl. She's a frequent speaker. She's also something of a legend in the online tax community and you can find her writings all over the place. She's on Forbes. She has her blog at taxgirl.com. She's on Twitter and more, and so we were thrilled to have her join us and share her insights.

David D. Stewart: And what sort of things did you talk about?

Jonathan Curry: Well, we talked about this upcoming filing season, which begins January 29. And it's funny because if we had recorded this two weeks ago, I think our conversation probably would've gone a lot differently, but we did not record this two weeks ago. We recorded it today, January 24, and instead of the relatively smooth filing season that we were all expecting to look forward to, many people including Kelly, as it turns out, are warning that the last-minute tax deal that's moving its way through Congress could make things a bit more hectic than people had hoped.

So during my interview with Kelly, I alluded to comments made by the national taxpayer advocate Erin Collins, who said in her annual report released a couple of weeks ago that she was "cautiously optimistic about the 2024 filing season."

But just a couple days ago I was in San Francisco for an American Bar Association Tax Section meeting, and at that conference, Collins was speaking again and she said that given what Congress is signaling and wants to do, she's needed to reevaluate her predictions about how things would go for the filing season. So we'll see how things play out.

David D. Stewart: All right, let's go to that interview.

Jonathan Curry: Hi Kelly, welcome back to the podcast.

Kelly Phillips Erb: Thanks for having me.

Jonathan Curry: I'm excited to talk to you about the filing season, which is getting ready to hit in just a couple days here, when we're recording this. I'll start with just sort of the big picture overall view here. What's your gut feeling towards how this filing season is going to go?

Kelly Phillips Erb: Well, I think if you had asked me a week ago, I'd have a different answer. I would've said I'm very optimistic about the filing season, but as I know we're going to get into later, there's some sort of late developments that could upend some of that. So I think overall I'm pretty optimistic, but I would maybe caveat that by saying cautiously so.

Jonathan Curry: Yeah, that seems to be the consensus view from other tax professionals and even some of the government officials that I've heard from. Erin Collins, the national taxpayer advocate, recently actually downgraded her cautiously optimistic prediction from a few weeks ago to something a little more concerned as we're heading into this uncertainty.

As we alluded to, there is a tax deal moving its way through Congress. It's passed out of committee on a 40 to three vote I believe, which is quite a bit of bipartisanship, but it's still uncertain how things will play out there. What's the impact here? There's a couple of different tax provisions. What sticks out to you first?

Kelly Phillips Erb: I mean, obviously I think the thing that's going to impact the season the most is going to be the child tax credit, and the reason for that is if they change the child tax credit for 2023, which is what's in the bill, it will require some maneuvering not only from the IRS but from preparers and also taxpayers.

And while there are other credits and deductions and breaks, especially those involving corporations in the bill, it's not typical that companies are the ones rushing out to file, right? Immediately. Typically, the taxpayers that you see kind of at the front of the line tend to be individual taxpayers and they tend to be families who are hoping for refunds and the expanded child tax credit would do exactly that. So I do think that that is the thing that jumps out at me in terms of what could make the season a little more difficult.

I think some of the other things that are in the bill, especially those that are geared towards corporations, definitely will make people's lives more complicated and there are some potential amended returns that might need to be filed. There's other things that are going to happen, but those I do think are things that, again, when you deal with companies, they tend to be a little more measured.

So I think it's not necessarily any less disruptive, but I think in terms of timing, you have a little bit more time to play with it. I think that the individuals, especially individual taxpayers and especially those individual taxpayers that don't have preparers, might not know about the bill, might not know how it impacts them and may not want to wait.

Jonathan Curry: Yeah. And now for tax professionals who would be assisting those kinds of taxpayers, especially on the child tax credit, do you have any sort of broad advice you would give for how they should plan around this legislative uncertainty?

Kelly Phillips Erb: So I'm kind of mixed on that because generally my rule is I always say plan for today, right? Because I do think that it is sometimes a little foolhardy to plan in advance for things that we don't know are going to happen.

So for example, there's been some chatter about repealing the estate tax. It's so far removed from what's happening right now that I would say plan for today. But that being said, especially something like the child tax credit because there is a possibility that it could change during the season.

I think that first of all, tax pros need to be patient, but they also have to keep their taxpayers informed and also remind them to be patient because I think sometimes a lot of the taxpayer ire gets directed towards preparers and professionals because we don't have all of the answers.

I think sort of setting people up for that understanding that things could be changing might make it a little more palatable than just sort of waiting to the end and saying, "Oh, by the way, here's what's happening."
So just a heads-up, not an alarming heads-up but just, "Here's some things that we're keeping an eye on because it might impact you." I do think that with respect to this bill, the further that the season goes without it being passed, the less likely it will be retroactive. Because I do think at some point there will be a clamor to not have this disrupt the season.

We can't be voting on this in March, right? So I think if there's going to be anything that happens, it's going to happen relatively soon, and that was of course, that was [Ron] Wyden's [D-Ore.] plan. He wanted to have it done before January 29. Again, that doesn't look likely, but if anything happens, I think it'll be soon.

So I think that just advising taxpayers to be a little patient, planning out a little bit, not rushing to file, I think those are smart moves and I think that's something that tax preparers could share with their clients without causing any real controversy or setting up any unrealistic expectations.

Jonathan Curry: Yeah, I think as you said, "might" is kind of the key question here. There's a lot of things that are still uncertain and there's a chance that even the provisions that were passed out of the committee could still be changed or added to or deleted.

Another thing to consider as well, is the prospect of a potential government shutdown during the filing season. Is that something you're really worried about or do you think that's more of a nightmare material for a different day?

Kelly Phillips Erb: So I don't think it's going to happen. That being said, this Congress has surprised me in many, many different ways. I don't think it's going to happen because I think that even though there is a lot of pressure to keep spending under control, to pass certain IRS unfriendly spending bills, I think there's a lot of pressure, but I also think there's a lot of pressure during an election year to not have the lives of voters disrupted.

So I think we're going to hear a lot of loud noise about a potential shutdown, but I'm not sure that I think that Congress is going to let that happen. What I would guess is going to happen, and again, could be wrong, but what I'm going to guess is going to happen is that they're going to continue to do these very, very short-term spending bills that we're seeing them do right now that are only going to be in effect for a few weeks or a few months at a time.

And then they keep getting renewed just because if there's not a consensus, which so far seems to be the case, I don't know that I think that either of the parties want to be in a position during an election year to have refunds not going out, to have people not be able to reach the IRS, to have other government services impacted.

So I'm not overly worried. I mean, again, it's something that you never know for sure because there is a faction in the Congress that is very happy to be quite disruptive, but I don't know that I think that anyone who's in a leadership position is going to let that happen.

Jonathan Curry: Next, I want to move to sort of the experience of this coming filing season. Now I want to look at it from three different perspectives, from taxpayer perspective, from that of tax professionals, and also from the IRS. As I understand, 2023 filing season last year, a lot of people seem to think the IRS was turning a corner. Things weren't quite as bad as they were during perhaps the peak of the pandemic.

And now the IRS is talking about — They have a whole bunch of initiatives. Just yesterday, for when we're recording this, they announced a new simpler notice initiative where they were going to make the notices that taxpayers get easier to read, shorter, more visually appealing, and hopefully making it easier for them to know what they're supposed to do with that notice.

I mean, do you think that this filing season for taxpayers that they'll notice a real difference in their experience with filing their tax returns?

Kelly Phillips Erb: Gosh, I hope so. I mean, to your point about the announcement on the forms, they've already started rolling those out in a pilot. If you could see the difference between — The pilot that they started with was the form 5071C, which is sort of an identity verification issue when you're seeking a refund and IRS needs you to prove who you are so that they can continue to process the return. That form has already been redesigned and it's been made available so that you can see the difference. And just even visually, it went from seven pages to two pages. That's huge for a taxpayer, right? So I think that IRS is definitely creeping towards making themselves a more friendly agency.

I know when [Janet] Yellen introduced the initiative, she, along with [Daniel] Werfel at the conference, one of the things that she said was exactly what you led off with, which is that last filing season she actually compared it to the year before and said that it was a night and day difference. And I don't know that I would say that it was completely a stark difference, but you can notice little things like being able to get through on the phones. I do think things like the chatbots make it easier on the IRS website, the call, the fact that you can call and get a callback just like you could if you called American Airlines and they were busy.

Those kinds of improvements, they're small, but I think they start to add up, right? You don't dread picking up the phone to call the IRS thinking that you're going to not get them to answer you for days. It might be a shorter period of time, right? So I think there were some real encouraging things that happened. That said, I know there's still a lot of frustrations and ironically, for example, the 5071C, the form that was the pilot for the redesign, I'm so glad that that's easier to read now. But the IRS is still having a really difficult time processing that on their end, right? So I have clients, I know other people that have had clients, especially for decedents who the administrators had filed returns on their behalf. Those still aren't being processed.

So I think what your experience is or will be this year is going to kind of depend on who you are, where you live, and what your issues are. And the reason I say where you live is because of the Direct File, which I think we might talk about later in the program, but there is going to be, I think, a change in the way that taxpayers perceive the year based on kind of who they are and where they are.

Jonathan Curry: Another thing too, this is perhaps a bit of a niche issue, but it's something the IRS and taxpayers have been kind of struggling with for a couple of years now, is how well taxpayers are reporting their digital assets, cryptocurrency transactions. I know the IRS keeps tinkering on the tax return forms trying to rephrase how they do things, and I think they're hopefully seeing compliance tick upwards. What's your sense of how well taxpayers are doing and how well the IRS is doing at convincing taxpayers to come clean, I suppose?

Kelly Phillips Erb: Well, I think you could look at the numbers. IRS has made some of the numbers public for some of their John Doe summonses that they've been filing. So we know those numbers in terms of who's reporting. I think you can tell that the numbers are trending up in terms of who's reporting.

I still think when you look at the overall client lists, at least as boasted by some of the platforms, how many clients they manage, and then you look at how many people are reporting digital assets, there's still very clearly a disparity, right? I think the IRS is doing a better job of education. I do think having that question on the front page is helpful. They've been changing the language, which I also think is helpful. Because I know a couple seasons ago the question was, are NFTs reportable, right? So now it doesn't say, I don't think cryptocurrency or digital currency, I think it says digital assets now.

So I think that IRS is being a whole lot more responsive than they were when they first mentioned crypto about 10 years ago when they were already behind the curve then, right? So when they released their guidance, they have been more responsive. I think that people who are experimenting with crypto and digital as investments, so somebody like me that's gone over to a platform and bought Bitcoin just to see what happens, right? I think those people are more aware because of the IRS's outreach combined with the IRS's overtures. I won't qualify overtures because they will probably call them friendly. I suspect the platforms would not describe it as such, but platforms have had to grapple with reporting requirements and what they should do. So a lot of them — so for example, Coinbase has made it very clear that you have to say who you are to be on their platform, that there will be tax reporting information that they are capturing.

So there's very definitely a section of the population that is dealing with digital assets that is both aware of and on some level, I think trying to be compliant with IRS rules on this. I think the folks who were sort of outside of the platforms are the ones that IRS is probably more concerned with. And I don't know that putting a question on the 1040 is how they're going to get there.

So I think that's why we're still seeing the number of summonses that we are. But I think that it's an area where IRS realizes there's a lot of money being moved around. They're trying to figure out in terms of their own resources, how much effort to spend on education versus enforcement. I was very surprised, and I've said this many times, and I'll say it again, I was very surprised not to see some kind of amnesty program for crypto.

It was interesting that we see it with ERC [employee retention credit], which is a much more recent development, but not with crypto. I sort of assumed that we might see something like we did with the offshore accounts where IRS says, "We know a lot of you haven't come forward, you should, and here are some favorable reasons to do so." Without that, I think folks who have not reported for some time might be wary of sort of making their quiet disclosure by all of a sudden saying they sold a lot of Bitcoin when they've never said that before. So I was very surprised to see that they didn't do any kind of amnesty program.

But that being said, they are very loud about crypto. I don't know how informative or useful it will be overall. And the reason I'm hedging a little bit is a great example, is this sort of kerfuffle that came up with respect to the [form] 8300, right? There are regs and there are rules on the books, but there hasn't been a lot of explanation and guidance provided to taxpayers on some of these issues. And you have taxpayers sort of seeing that there's a lot of uncertainty. And I think that they're really worried about reporting because it's a different world, right? It's very much like offshore.

It's something that there are people who might have fallen into a trap of not reporting quite by accident, and then there are certain people who did it quite deliberately. And the trick is how do you move both of those classes of people into compliance? And I don't know that I think that Treasury and IRS has done the best job of driving that.

Jonathan Curry: I do want to pivot to the tax professionals' experience too in this coming filing season. For the last year, I've seen a number of announcements about new online tools, both for tax professionals specifically like the online Tax Pro Account and also for their clients' business online accounts, taxpayer online accounts, and things like that. Any particular tools that you're excited for that you think will make a real difference this filing season?

Kelly Phillips Erb: Well, anybody on Twitter knows that I am very enthusiastic about the Tax Pro Account. I think that the IRS has made significant improvements. One of the things that stands out I think the most is that the delay in processing forms 2848, which are the powers of attorney, was painful.

And you would often submit them, not hear back, then you'd have to call to find out the status, had it been accepted, can I find out a balance? That was so time-consuming, the idea that now it is linked to your portal as a tax professional, I can literally log in, see that they process my power of attorney, check my client's balance, get back to them.

That's a 10-minute process instead of hours' long. So I think from an efficiency standpoint, the Tax Pro Account, it's a really wonderful development. The IRS says they're going to be doing more things with that.
I'm really excited to see what that holds. Right now, you can also revoke powers of attorney. Anybody who's a tax professional knows that once you get a power of attorney, if the client leaves or they're going to resolve it on their own or for whatever reason, you are still on that power of attorney until the client revokes it, which can be time-consuming.

Again, now you can actually do that as a tax professional from within the portal. So I think that the new online tools that IRS is rolling out, both for professionals and also for individuals and businesses. benefits professionals, because I've also had conversations with people where I've said to them, "Why don't you log in to your account and get back to me?"

Because maybe that individual doesn't want to pay immediately for information or advice, but they are lost in terms of what to do, that makes them feel better that they can log in and see what's happening. I also think it makes it more real that it's not a bunch of pieces of paper that they've just put on a desktop because they're scared to look at it. It's sort of on your dashboard all at one time.

It gives a really good picture of what needs to happen, and then you can work with your tax professional to move towards compliance. And I think that that is just really helpful. That level of efficiency is something I'm very enthusiastic about and I'm hopeful that the IRS continues.

Jonathan Curry: One thing too to bring the potential for legislative changes during the filing season, like the child tax credit, to bear from the tax professional perspective. I recall back during the COVID pandemic period, there was quite a few pandemic-era tax law changes, some of them mid-filing season, and as I recall, a lot of the software companies struggle to get these changes right on the fly. Is that a concern for tax professionals that tax software might struggle to keep up with whatever Congress is doing?

Kelly Phillips Erb: I think so as the season goes on, for sure. And on the tax software side, I will say that their challenge is waiting for IRS to update their systems. I think that's probably their biggest challenge. So it's not just how quickly will software company A do it, it is how quickly if it were to become a real change that would impact the 2023 tax year.

How quickly does IRS change their system to show that? And then that trickles down to the software company, right? So [I] think it is a concern, again, if it happens early on — IRS is constantly doing revisions early in the season. So if it happens early on, I anticipate that the changes could maybe trickle down a lot faster to the software companies. I do think that if it happens further in the season, it's going to be a much more slow process.

Jonathan Curry: So the IRS also has to administer this tax filing season. We're about a year and a half post the Inflation Reduction Act (IRA) funding coming into play. The IRS has had time to put together some exciting initiatives. What's your take on how well the IRS is positioned right now, sort of speaking broadly?

Kelly Phillips Erb: I think they're doing really well considering the circumstances. If you look back to where things were, especially coming out of the pandemic and how really backed up they were in terms of returns that have piled up and things that needed to happen in terms of getting checks out, there was a lot going on and people were really unhappy.

I think they're doing better. I think that money that you mentioned, the IRA funding, it's helpful. I guess if I had one worry, it's that as there are concerns about continued funding, I think that the IRS is sort of maybe rushing a little bit to show what they're doing. And I understand that because I used to remember being on a committee once and we had all of these big plans for this business district that we were part of, and our executive director kept saying, "We need to get these flower baskets up."

And we would sit at these meetings and we're like, "Why do we need the flower baskets up? Because there are many more important things that we're working on." And he said at the time, and he was right, he's like, "You know what? They don't care about the parking lot negotiations because they can't see those, but they can see the flower baskets and know that that means that something is happening." And I think that IRS is in a similar place. I think that they're trying to show a lot of signals so that taxpayers and tax professionals see that they're doing stuff with this funding so that it doesn't get yanked away.

I just hope that they do that in a smart way. And so far I will say I think that they have been really smart about the way that they've rolled out things and the speed. I do think that during tax season, they may need to be a little more cautious because taxpayers and tax professionals can both get overwhelmed very quickly with all of the new stuff.

Especially in the tax profession, we're creatures of habit. So sometimes the changes like the Tax Pro Account can make our lives much, much easier and better and more efficient. But sometimes these changes, like changing the child tax credit, even if it's better for the client, isn't necessarily easy for the professional.

Jonathan Curry: To your point about the IRS touting the Inflation Reduction Act funding almost at every opportunity, I can certainly bear witness to that as well. Every week for the past year, I've seen some announcement from the IRS, usually more than one announcement about some new initiatives, some new milestone they've hit. If I were to ask the IRS commissioner Danny Werfel, how his day is going, probably say, "Great, thanks to the Inflation Reduction Act funding." So they never miss an opportunity to plug it.

Now, any other potential complications on the IRS's end as you're looking to the filing season? I know for example, the IRS is planning to restart the automated collection notices that have been paused, anything like that?

Kelly Phillips Erb: So I think there's two things that are going to be confusing. One is, I'm going to agree with you on the collections especially because some of the collections' relief that they had announced a few weeks prior that's going to be retroactive, I think is going to confuse taxpayers. Because taxpayers aren't always sure about which year they owe, right? So sometimes they know "I owe a balance," but when is it from?

And if they hear penalty relief, they might have assumed that it applied to them when maybe it didn't. So I think there's going to be, as notices start rolling out and as collections resume, maybe some surprise to taxpayers. So I think that that could be confusing and impactful.

And then the other thing that I think is actually going to be a complication, which there's enough blame on this to sort of go around to everyone, but the Form 1099K, we know that it's technically on pause, the new threshold is on pause so that the old rules for 2023 are going to be the same, right?

So nothing has changed. We're not supposed to be getting this big snowball effect of notices coming at the end of this month from your Venmos and your PayPals. It's not supposed to happen. I fear that because some of these processes were already in place and some of these companies were already planning to do it, that it's going to happen anyway to some taxpayers, not like on a massive scale.

But I do think there will be some of those Forms 1099K that get out that maybe shouldn't have. I think that's going to be confusing for taxpayers. And then I think taxpayers who are not aware of the pause are going to be expecting them and not see them. So I do think that the Form 1099K, sort of the way it was handled both by Congress and IRS, is going to confuse taxpayers a little bit.

And I think, again, that's going to be where a tax professional needs to be really proactive about explaining to their clients what's happening, what does this mean for you moving forward so that there's not this kind of panic of, "I did get this form or I didn't, what do I do with it? Or what do I do that I didn't get it." Right? So I think that that is still sort of lingering. I think we've forgotten about it because of the IRS announcement, but I think that the potential for confusion, even for this tax season, is still there.

Jonathan Curry: Yeah. OK. And then last but not least, I do want to cover another sort of filing season adjacent topic. The IRS has a much ballyhooed, if you want to call it that, project called the Direct File pilot where taxpayers will be able to file their tax returns directly with the IRS, federal return only, although some states are cooperating with the IRS and trying to make it a seamless experience. Any predictions for how this will play out? Are you expecting either a complete disaster or an unmitigated win or somewhere in between?

Kelly Phillips Erb: I think somewhere in between. I'm interested to see how it rolls out this season. I think that from a design and tech standpoint, I'm not overly worried, right? Because the IRS knows what's in those returns. They worked with software before, that's familiar territory to them. And seeing some of the early screenshots of what the interview process looks like, I think it's going to be the same kind of thing that taxpayers are pretty much familiar with already, right? Like a TurboTax or one of those kinds of platforms.

So I don't think that the tech side is going to be a problem. I mean, understanding that there can be stuff that happens that is unexpected. I think for the most part on the tech and design side, I don't think that it's going to be problematic. Where I see there being concern or difficulty is that because this is going directly to IRS without the middleman, right? There's no customer support that is on a software company side, the taxpayer is going to have to rely on the IRS for customer support.

Now, Werfel has said that they're going to have dedicated assisters on those lines to help people with that. I do worry a little bit that there might not be enough resources to support this in a first year, depending on how many questions there might be. And there is concern on, especially tax professionals that I've talked to, their side is we know it's always been the policy that IRS moves people around during tax season to sort of plug holes, right?

If they're moving people to plug holes to make sure that, as to your point, the ballyhooed project works well, does that mean that somebody else loses? Now Werfel says no, but we'll see. And so I think that the program itself, I'm not worried about, again, the tech and design. What I worry about the most is going to be the challenge of providing an appropriate amount of support to make sure that taxpayers have the experience that the IRS says they're going to have, and then make sure that somehow that doesn't take away from other taxpayers who are not in these programs.

Jonathan Curry: Yeah. OK. That's a very interesting point. That's a wrap on my end. Kelly, thank you so much for joining us and good luck with this coming filing season.

Kelly Phillips Erb: Thanks.

David D. Stewart: And now, coming attractions. Each week we highlight new and interesting commentary in our magazines. Joining me now is Senior Executive Editor for Commentary Jasper Smith. Jasper, what will you have for us?

Jasper B. Smith: Thanks, Dave. In Tax Notes Federal, Edward Fox and Zachary Liscow propose a tax on billionaires that would close the borrowing loophole. Three KPMG practitioners examine the shifting landscape of the IRS's research credit audits.

In Tax Notes State, Asma Khan and Francine Lipman present a review of ABLE accounts across America. Joseph Eisenhauer looks at state and federal excise taxes on alcoholic beverages in the United States.

In Tax Notes International, Filippo Baglioni and Paolo Panteghini explain Italy's new cooperative compliance regime. Allison Christians examines a recent tax court of Canada decision that took an unusual approach to treaty shopping.

And finally, in featured analysis, Joe Thorndike traces the history of taxpayer groups in the 20th century, from the early efforts to curtail wasteful government spending to more contemporary anti-tax sentiments.

David D. Stewart: That's it for this week. You can follow me online @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or a review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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