While I’ve had many a melt-down over the years regarding federal tax legislation enacted late in the tax year, or even a few days after the tax year has ended, never before has there been a retroactive change to prior year tax law enacted after tax filing season has actually begun..
These are the tax breaks that officially expired on 12/31/16, also known as “extenders” because they are typically re-upped each year by Congress. Why weren’t they included in the “tax reform” package that was hastily enacted in late December of 2017? Well, because they are tax expenditures, and therefore cost money – billions of dollars in fact. That would have blown Congress’ contrived $1.5 trillion net expenditure limit, so they couldn’t be added to that legislation. Solution? Just add them later to a budget deal, raise the debt ceiling, and away you go. After all, the true cost of the extenders is hidden in plain sight behind their sunset dates. By making them “temporary”, these extenders cost far more than what is included in the federal budget, by some accounts, approaching $100 billion.
Meanwhile, IRS must now revise dozens of tax forms and schedules, including the 1040 itself in the middle of the 2018 filing season. In response to this unheard of development, IRS issued what is probably the shortest press release in history – a 3 sentence “statement” promising to assess the significant changes to the tax law “as quickly as possible”.
The newly enacted budget deal includes money for lots of stuff (how about a parade?) but doesn’t provide funding for IRS to address not only the “tax reform” package passed in late 2017, but the newly revived extenders as well. The IRS has estimated that it will need $397 million to upgrade systems and hire new staff for the expanded workload. However, they were only given $90 million to do so. In my profession, it may seem odd to have compassion for IRS and its workers, but this year I do, more than ever.
Taxpayers who have already filed their 2017 tax return, but could benefit from an extender that was retroactively re-enacted, will need to amend their tax return to claim any benefits. Sadly, the cost of doing so may outweigh the tax savings. This fact pattern affects mostly lower income filers who tend to file early in the season. Score another goal for income inequality that is baked right in to the cake.