Filing Season 2011 Finally Begins

Mid-day Monday, February 14, IRS expects to be able to begin processing 2010 tax returns for those taxpayers who itemize their deductions, take advantage of education incentives, the Homebuyer Credit and many other less frequently used tax benefits. My firm generally preparers about 1000 tax returns each season; so far we’ve been able to file two 1040As.

When Congress delayed until December 17 making changes to the 2010 tax rules affecting millions of filers, it caused a ripple effect on the entire annual tax filing ritual. IRS was delayed in finalizing the forms and releasing them to software developers, who couldn’t finalize their programs until they had approved forms.

IRS also needed to re-program their computers, and so were forced to announce that returns containing numerous items that had been adjusted with the December 17 Act, affecting taxpayers claiming itemized deductions on Schedule A, higher education tuition and fees deductions, and the educator expense deduction, could not be filed until mid-to-late February.

Since IRS could not process them, IRS requested taxpayers and preparers not submit affected returns electronically or on paper until they were able to do so.

Combine these delays with the phenomenon we have seen the last few years of Treasury granting delays to financial institutions for delivery of Forms 1099 reporting interest, dividends and securities transactions to mid-February or later (then followed by corrected versions of those same documents for several months). The result: the return preparation window tax preparers work within this year has shrunk to about eight weeks. Some may deal with this by placing more clients on extension, but even that takes little pressure off the practitioner. While final information to complete more complex returns is often not available until mid-September, taxpayers must be able to closely estimate the balance due by April 15 or risk failure to pay penalties. Processing of those returns must be initiated prior to April 15, placing them within the eight-week window, too.

Work compression stress affecting tax professionals is not the only byproduct of Congress’s late actions. I predict many self-preparers will not take the time to find out how the law changed so late in the year, and miss benefits provided or taken away at the last minute. I also predict we will see numerous “glitches” with IRS processing of returns. We see some each year. They appear as letters to taxpayers telling them “we’ve changed your return…” Now you try to figure out how! Best advice: if you get such a letter and your return was professionally prepared, don’t assume IRS is correct. Take the letter back to your preparer for them to interpret and respond on your behalf.

And if you have a trusted tax professional that seems a bit more cranky than usual this year, consider the added stress they’re under. Remember, they’ve got your back if anything should be challenged on your return.