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Outlook for Lessons From the 2017 Filing Season

April 13, 2017

Tax filing seasons are not created equally.

We’ve seen years in which IRS was forced to program its computers to reflect late-December retroactive law changes. We frequently witness new tax laws take effect, such as the Affordable Care Act (ACA), or sunset, such as temporary provisions encouraging first time home buyers.

The current filing season is no exception to the rule. While we didn’t have any last-minute surprises due to late tax law changes, we had several substantive law and policy changes to digest, many of which were driven by the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). And with the change of administration, talk of health care reform and of tax reform have created uncertainty.

As the tax season comes to a close, here’s what we can learn:

  1. Have the efforts in the fight against refund fraud made an impact? The PATH Act included an anti-fraud provision delaying any refunds that include a claim for the Earned Income Tax Credit and/or Child Tax Credit. This delay disrupted millions of taxpayers who expected an early-in-the-season tax refund. Meanwhile, fraud remains a significant issue outside of the realm of refundable credits, and the IRS made strong efforts to protect taxpayers and the Treasury, including through the public-private Security Summit (H&R Block is a participant) and a greatly expanded a Form W-2 verification project.

    We’d like to know how successful the refund delay was in preventing fraudulent refundable credit claims. Did the law bring about the desired result? How successful were information return filers in meeting the accelerated Form W-2 and Form 1099-MISC deadlines? More generally, how successful were new efforts been to curb stolen identity refund fraud?

  2. How were nonresident and resident aliens, their spouses, and dependents affected by the PATH Act? The PATH Act also included new Individual Taxpayer Identification Numbers (ITIN) renewal requirements. Some will recall the Tax Reform Act of 1986 included a program, dubbed “TINs for Tots,” that required Social Security numbers for dependents. When the IRS implemented the program in tax year 1988, the number of dependents claimed dropped roughly 7 million, including more than 10,000 returns that reduced dependents by at least seven.

    Moving forward nearly 30 years, did this year’s new ITIN renewal requirement significantly reduce the number of ITIN filers? More broadly, how did the new ITIN statute, drafted in response to concerns about ITIN misuse, change filer behavior?

  3. How did uncertainty around the ACA affect filing behavior? The change in administration also ensured the filing season wouldn’t be dull. An early February Executive Order (EO) caused the IRS to reverse a decision to reject tax returns that were “silent” with respect to the ACA individual mandate (i.e., if Box 61 was not checked or neither Form 8965 nor 8962 were submitted). Further, Congress spent much of the filing season debating various approaches for repealing the ACA. Both the EO and the debate confused taxpayers and tax professionals.

    What was the net effect? How many tax returns include silent ACA disclosures? The IRS warned of possible consequences for those who made silent disclosures, but what enforcement steps, if any, will the agency take? And finally, how does the agency plan to handle silent disclosures in 2018?

While tax returns on extension are not due until October, the vast majority of all returns will be filed by April 18. As more data emerges in the coming weeks, we will be returning to these issues and analyzing their impact on taxpayers and implications for the 2018 filing season.

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