The Internal Revenue Service is often the federal agency that draws the ire of taxpayers every April during tax season. But this time around, Americans may be better off directing their anger at Congress.
That’s because lawmakers are sitting on a package of tax extensions requiring congressional approval in order for the IRS to prepare tax forms for both businesses and individuals. Unless Congress agrees on so-called tax extenders before December, taxpayers may see delays in their refund checks next spring, according to IRS Commissioner John Koskinen.
“If the uncertainty over extenders continues into December, the IRS could be forced to postpone the opening of the 2015 filing season,” Koskinen told an audience of accountants last week. “Our hope is that lawmakers will provide a clear policy direction for the extenders legislation before the end of the month.”
More than 50 provisions in the tax code may not apply to the 2014 tax year if Congress doesn’t take action on the tax extenders. The biggest package of those extensions is an $85 billion measure (S. 2260) approved by the Senate Finance Committee but awaiting a Senate floor vote. Sen. Ron Wyden of Oregon, the panel’s chairman, introduced the bill on April 28.
Provisions in the Wyden measure include items such as the exclusion of forgiven mortgage debt from a homeowner’s taxable income and the exclusion of certain charitable contributions when calculating the income of taxpayers with an IRA.
While there are other tax extenders besides the one included in Wyden’s bill, his measure extends the bulk of the provisions set to expire.
The House has taken a different approach. While the Democratic-led Senate has proposed extending nearly the entire package of expiring provisions through 2015, the House passed legislation that would permanently extend only 14 provisions, five of which were included in H.R. 4719, a measure the House passed 277-130 in July.
Sage Eastman, director of strategy and public affairs for the Ways and Means Committee, said the House-passed measure represents “some of the most important policies with strong bipartisan support. But the list is truncated due to the legislative calendar, not the merits of any particular policy.”
Congressional delays are becoming familiar territory for the IRS. In 2010, Congress didn’t begin debating whether to extend the Bush tax cuts until November, just a month before the provisions were set to expire. That made it difficult for payroll departments to determine withholding amounts for paychecks in early 2011.
Without legislative action on tax extenders during the upcoming lame-duck session, there could be a “domino effect” for the IRS and pretty much anyone in the tax-preparation field, according to Melissa Labant, director of tax advocacy for the American Institute of Certified Public Accountants.
“The IRS has to update tax codes; software companies need to pre-code software; and taxpayers are affected if there’s a delay in Congress,” said Labant, adding that inaction by lawmakers would exacerbate an already complicated tax-prep year.
“Folks already have to plan around their filings, and this year the challenges are the new rules with the Affordable Care Act and repair regulation rules,” a set of provisions designed to make it easier for business owners to distinguish between repairs and maintenance of tangible property, she said.
Koskinen’s public warning to lawmakers last week about the impending tax-extender deadline wasn’t the first time he’s sounded the alarm. In early October he sent a letter to lawmakers urging congressional action.
“Continued uncertainty would impose even more stress not only on the IRS, but also on the entire tax community, including tax professionals, software providers and tax volunteers, who are all critical to the successful operation of our nation’s tax system,” Koskinen wrote in the Oct. 7 letter.
A month before that, the American Institute of Certified Public Accountants sent a similar letter to Wyden and Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee. That letter appealed to the business uncertainty aspect accompanying not just a potential delay but also the ad hoc approach to extending tax provisions.
“These ever-changing, often expiring, short-term changes to the tax laws make it increasingly difficult for small businesses and their owners to perform any long-term tax, cash-flow or financial planning,” Jeffrey Porter, head of AICPA’s Tax Executive Committee, wrote in September. “If businesses are not able to rely on these tax benefits for the long-term, they are limited in their ability to plan, invest, grow and expand, and hire additional workers.”