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Tax Overhaul’s ‘Simpler’ Code Making Complex Filing Season

Feb. 20, 2019, 9:45 AM

Tax preparers aren’t usually the ones making up the rules as they go along.

But for so far this tax season, tax preparers have at times had to throw out the old rulebook as they slog through the first filing season under which the new tax code applies. And they aren’t the only people struggling to make sense of the vast changes under the 2017 overhaul. Preparers told Bloomberg Tax that they are spending more time this year fielding questions from taxpayers, ranging from confusion over which deductions are no longer in effect to whether refund amounts could vary.

“To me, a lot of things seemed to have been changes for change’s sake,” Jeffrey A. Porter, founder and owner of Porter & Associates CPAs in Huntington, W.Va., told Bloomberg Tax. “They didn’t ultimately improve the filing process.”

Preparers are also struggling to work through new guidance on tax overhaul provisions and are having to fill in the blanks where guidance hasn’t yet been finalized. And even once the guidance is final, it doesn’t necessarily bring relief.

For example, many tax software programs aren’t correctly calculating the tax law’s 20 percent deduction for pass-throughs under added tax code Section 199A, Porter said. That means some preparers have been manually calculating the deduction.

“All things considered, it’s looking like a tough rest of tax filing season,” Porter said.

The Internal Revenue Service has also issued near-daily notices since the filing season began, reminding taxpayers to set up payment plans if necessary or look to the agency’s website for answers rather than calling and waiting on hold.

“Despite a variety of challenges, the IRS is off to a good start to the 2019 filing season, and tax professionals have been a critical part of that,” an IRS spokesperson said in an emailed statement.

Will They Pay or Do I Owe?

Confusion over the IRS’s planned revision of the Form W-4, a key tax withholding form, kept many taxpayers from checking and adjusting their withholding rates, said Cindy Hockenberry, an enrolled agent and the director of tax research and government relations at the 22,000-member National Association of Tax Professionals.

That has added fuel to what has been the main concern so far this tax season: smaller refunds.

The IRS in September 2018 announced it would push its planned revision of the form to next year.

“The onus is on the taxpayer to plan for the outcome they want,” Lynn Ebel, a director at H&R Block’s Tax Institute, told Bloomberg Tax. “If you want zero refund or a larger refund, that’s up to the taxpayer to plan ahead so they don’t get any unexpected surprises.”

Mariette O’Malley, a partner at certified public accounting firm O’Malley & O’Malley LLP in Cinnaminson, N.J., said she spent all of 2018 warning her clients to consider adjusting their withholding rates. “We’re very proactive about getting our clients to take a look at this,” she said.

Form Fluctuations

It is also more difficult to explain tax changes to clients this year, said Katy Schultz, tax and financial services director at Prepare + Prosper. The organization is a St. Paul, Minn.-based nonprofit that operates free filing clinics for low and middle-income taxpayers.

The Form 1040, Individual Income Tax Return, is now a two-sided half sheet with up to six attachments instead of a single long form. Tax preparers can no longer conduct line-by-line comparisons between returns this year and returns from last year to see why a refund may have changed, she said.

“There were so many changes in terms of calculations and what types of benefits people might qualify for, so this would have been a very useful year to compare line by line,” Schultz said.

The combination of a reworked tax return form and an overhauled tax code has definitely made the filing process harder for preparers this year, said Porter, the West Virginia CPA.

But for first-time filers, the return may be easier to use, he said. And over time, the code changes could increase the number of taxpayers doing their own returns.

“If people don’t want to deal with filing, they’ll probably still have preparers do it. But they also might find after a year or two of not going to itemize that they might just go ahead and do it themselves,” he said.

Challenges for State Filers

Preparers in states that haven’t adopted the federal changes have also faced added challenges.

Minnesota is an example of a state that hasn’t conformed to federal tax standards. That means taxpayers still have the option to itemize on their state tax return, but many may have stopped keeping diligent records because they no longer plan to itemize on their federal return, Schultz said. In that case, individuals could miss out on some tax benefits for which they qualify.

“We’re now having to help clients navigate different options with itemizing on top of all of the same tax considerations we’ve dealt with previously,” Schultz said. “At the preparer and taxpayer level, it can become logistically challenging.”

Virginia taxpayers were stuck in limbo as their state legislature wrestled with how to respond to changes in the federal code even after filing season began Jan. 28. Virginia passed a measure conforming to the federal code on Feb. 15.

Many individuals up until that point had been holding off on filing returns, said Gary Thomson, a partner with the Richmond, Va.-based accounting firm of Dixon Hughes Goodman LLP, who called it a “paralyzing situation.”

To contact the reporters on this story: Robert Lee in Washington at; Andrew M. Ballard in Raleigh, N.C. at; Leslie A. Pappas in Philadelphia at

To contact the editors responsible for this story: Patrick Ambrosio at; Colleen Murphy at