by Roger Russell
Significant new tax law changes, an expanding economy, expired tax provisions that may be reenacted and a smaller-than-average increase in the total number of tax filers will all impact the type of filing season facing tax pros this year.
Both the Internal Revenue Service and H&R Block are projecting a smaller increase than usual in the total number of filers. But observers say tat the complexity in a number of new tax law provisions should drive more taxpayers to seek professional advice.
“It will be a great tax season for everyone,” predicted John Hewitt, president of Liberty Tax Service. “The tax law changes get more and more complex. Even though the total number of filers hasn’t grown as expected, a higher percent will need professional help.”
Hewitt explained the IRS projections as reflections of the economy. “Last year, there were about 132 million filers; and the year before, there was the same number,” said Hewitt. “By my calculations it should have been 133.5 million or 134 million filers last year — some just didn’t file because they owed money. Since the economy is up, it should grow the number of filers to make up for those who didn’t file last year.”
Jackson Hewitt president Mike Lister said that, in early December, the IRS appeared to be later in its preparation than in previous years, “but they have really sped things up. It looks much smoother now than last year at this time. That’s important for us, because we do a lot of returns earlier than most. It should be a good season for tax preparers in general.”
Oxnard, Calif.-based FileYourTaxes.com vice president Timur Taluy similarly predicted a growth year ahead. “There are a lot of new laws and regulations out there — especially with regard to the pre- and post-May 5 capital gains and dividends — that will be bringing taxpayers in,” he said.
Chuck McCabe, president of Richmond, Va.-based Peoples Income Tax, sees negatives as well as positives in the new tax legislation. “Tax changes always confuse people and bring in some clients that haven’t been to a preparer before,” he said.
“However, there’s a possible downside in the increase in the standard deduction for married couples filing jointly. This will push a lot of them from a Form 1040 with a Schedule A to a Form 1040A or a Form 1040EZ. A lot of them will do their own returns because they’re simpler to do.” The IRS’s continuing efforts to enable taxpayers to do their own returns, and the growth of nonprofit organizations to assist them, will impact practitioners who serve the low end of the industry, according to McCabe. “The saving grace is that none of them offer refund anticipation loans.”
Earned income credit compliance presents another possible glitch for preparers who serve lower-end clients. “The new commissioner is zeroing in on problems and the earned income credit is one of them,” said Rochester, N.Y.-based enrolled agent Alfred Burgos.
A potential problem are the tax law provisions that expired at the end of the year, since no “extenders” bill was passed. These provisions include an allowance of nonrefundable personal credits against the alternative minimum tax, the work opportunity tax credit, welfare to work credits, and the five-year carryback for net operating losses.
Although observers predict the passage of most of them, the House and Senate failed to reach an agreement before adjourning in December.
Senate Finance Committee chair Charles Grassley, R-Iowa, and ranking member Max Baucus, D-Mont., in a joint statement, promised swift action to pass legislation “as quickly as possible” when Congress reconvenes.
While Steve Sabba, president of New York-based TaxPro Financial Network Inc., believes that most of the expired provisions will be reenacted, he noted that, “It’s an election year — you never really know.
