The Long Road to Tax Certainty

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Roger Harris: Hello again. Welcome to another Federal Updates podcast. It's Roger and Annie and Annie. How are you doing today?

Annie Schwab: I'm doing pretty good. It's, um. I'm in Texas. It's pretty. The sun is out, so, um, hopefully everyone's doing well, getting ready for the holidays, but. Glad to be here.

Roger Harris: Yeah, a little cold weather around the country, but that's okay. It's. It's [00:00:30] that time of year. Well, Annie, we have another special guest today. Um. And then I'm going to introduce him and then we'll get started. And he's not a stranger. Uh, he's someone that that we've known for a while. We're we're very pleased today to have Thad Inge from Van Stoic and Associates join us. And Thad and Van Stoic have been representing pageant in Washington for. Gosh, Thad, how many years has this gone on? I it I know it was Jeff before [00:01:00] he.

Annie Schwab: Yeah. I think Jeff started working with you in the late 90s. Is that right? Yeah.

Roger Harris: Yeah, that sounds about right. So and Thad and I have been working together in DC for the last few years and, and what van stoic and what Thad does for us is he helps. He's our kind of on the boots guy in Washington, DC, uh, helping us manage what goes on in Capitol Hill and both the IRS, because as much as we'd like to think we're just in the tax business, we're impacted a lot by political winds [00:01:30] and politicians, and that's good and bad. And I know that Van Stoic was critically valuable to Padgett during the pandemic, when things were happening and it seemed like every hour or something was changing, they were keeping us abreast. So it's been a great relationship. And Thad, thank you for taking time and joining us today.

Thas Inge: Absolutely. I'm glad to be here. And there's in DC a lot of times there's a lot going on and not a lot going on. So there's a little bit.

Roger Harris: Of one or the.

Roger Harris: Other. [00:02:00] It's a little bit of both right now. Uh, but I think there's lots of stuff to talk about at least.

Roger Harris: Yeah. And we're going to kind of try to talk about some of the things that we're where politics and taxes interject and obviously talk about IRS and a lot of things. And, uh, and it's a good perspective. It's a little different than what, um, than what we sometimes think about. And maybe we pay attention to the wrong things or don't pay attention to the right things of what's happening in DC. And and yet it impacts our day to day job. And [00:02:30] and Thad, thank you for taking time. And and Annie, thank you as always for being here. And Annie, why don't you start us off and then we'll we'll go through and we'll see where we end up. Because any time you talk about politics and taxes, there's there's the danger that we could go off into a, into a bad spot. But we'll try to keep it. Keep it on the road.

Annie Schwab: No. That's great. Thank you so much for joining us. And and like Roger said, today's agenda is sort of the state of Congress. You know, what's going on with the funding [00:03:00] challenges, what we can look or what we can expect with new tax provisions. Um, kind of just what's happening at the IRS. So, um, we'll go ahead and get started. Of course. I'm sure somewhere in this podcast we will start talking about the IRC. So we won't we won't let you down on that point. But yeah. Um, Thad, go ahead and kick us off with maybe what's the new major legislation going on? What's top, top topic, so to say? Um, tell us a little bit about [00:03:30] that.

Thad Inge: Yeah. And sort of as I said earlier, you know, DC will be a lot of gridlock, a lot of stuff not happening. And then stuff will happen really fast. And I think we saw during Covid just so much legislation, so much major legislation get passed really quickly, um, that had, you know, huge impacts on small businesses, on taxes, on the business community in general. And, um, that has continued to a degree. If you look at 2022 [00:04:00] and 2023, there were some significant pieces of legislation that have, uh, gotten passed. Um, the Inflation Reduction Act is kind of front and center. Um, had all kinds of stuff included in that bill. Um, but one that we were specifically very interested in was the $80 billion for, um, for the IRS. That number's been adjusted a little bit, which we'll talk we'll talk more about. But, um, but, you know, the IRS and Roger's been coming to, you [00:04:30] know, DC for decades now talking about the need for stable funding, the need for modernization, uh, better customer service, um, at the IRS so they can do their job. So tax professionals and businesses can, can communicate and work with the agency. And, um, and so that was a big deal. It's $80 billion over nine years in addition to the to the annual, you know, appropriation. Um, and then at the end of the year, at the end of last year, um, was when there started [00:05:00] to be a lot of talk about a potential tax extenders package R&D, um, started coming up the 1099 K issue. Both of those we'll talk, talk more about.

Thad Inge: But um, they were not able to get sort of a traditional tax extenders package in the end of year spending bill last year. Um, but they did have the secure 2.0 retirement legislation as part of that. And that legislation had, you know, huge impacts on retirement plans and sort of tax implications [00:05:30] around retirement plans. And so that was sort of the biggest tax related. Issue that got passed at the end of last year. And then this year in May, we had the debt ceiling crisis, um, where it looked like, you know, the government might default on their debt if something wasn't done, if Congress didn't act. Biden and President Biden and Speaker McCarthy had the big negotiation. They were able to strike a deal. A part of that deal was [00:06:00] reducing the IRS money by 21 billion. So that you remember that $80 billion figure became, um, 59 billion. And, um, that's actually, uh, it was sort of an agreement in principle for it to actually be implemented over the next two years, each of the appropriations bills will take, uh, 10 billion, um, away from them. So that's sort of still a work in progress. But, um, but everyone, you know, that was part of the agreement. So there's no dispute that that money will be, you know, eventually taken [00:06:30] away. And so those were kind of, you know, three big bills that brought us up to the fall where we are today. And, um, it's been, um, you know, a series of deadlines and interesting things that have that have happened already this fall.

Roger Harris: You know, we sometimes remember not a big tax bill. Nothing happens, you know, but that's not the case.

Thad Inge: Yeah.

Annie Schwab: And now the secure act was how many pages? Like hundreds of pages. I remember flipping [00:07:00] through that, being like, there's so much in here, some hidden stuff with energy credits, some, you know, a lot about retirement. Um.

Thad Inge: And kind of and that's going to be the, you know, the gift that keeps coming because there are different phases and dates. Some of that stuff, you know, went into effect almost immediately or will go into effect in January. And then a lot of it had, you know, dates that was further out. Um, in terms of the savers credits switching, you know, switching that [00:07:30] over and um, and so their, um, their variety of provisions that'll take a while to go into effect. And then of course, there's going to be regulations coming out of both Dol and Treasury around, um, around that. And then Congress is looking at a technical corrections bill with these big bills. There's always issues that have to be fixed, mistakes that happen. Um, there was one with the Roth where it looked like in terms of catch up contributions, it created some [00:08:00] complications. I think they were able to fix that administratively. Um, but Congress was like, no, no, it was not our intent to take away, you know, take away catch up contributions. Um, and so, yeah, that's a that was a big one. And then when you look at sort of where we've been this fall, you know, a lot of times the, the focus in the fall becomes how do we fund the government? September 30th is the end of the of the fiscal year for the federal government. And so they always need to pass something by September 30th. [00:08:30] It's often a short time extension. Um, this year that's what happened. That was the the weekend that folks will remember where everyone the news you know, if you spoke to people on the Hill, everyone was 99% sure that the government was in a shutdown.

Thad Inge: Um, and, and people will say, well, don't they always figure it out at the end? And people said, no, no, this time is different. They they have to shut down because if they don't, speaker McCarthy loses his speakership. And he cut a deal that [00:09:00] Saturday, uh, with the president and the Senate. They passed a bill to keep the government open until November 17th. Um, and it turned out that the the doubters were right. As a result, he did lose his speakership. So, um, yeah. Matt Gates soon after filed the resolution to to call for a vote on McCarthy. And, um, on October 3rd, the House of Representatives removed McCarthy as speaker. Um, and [00:09:30] that led to a, um, you know, an interesting few weeks where there were a series of candidates for speaker. The House was was a little bit in chaos. Luckily, the government wasn't shut down. You know, they had until November 17th. Um, but it wasn't until October 25th that, um, that Speaker Johnson from Louisiana was relatively unknown, um, but had fewer enemies than some of the others, which is probably, you know, why he was able to to get in there. Um, but he [00:10:00] became the new speaker and, um, and then on November 17th, he had a bit of a honeymoon period where he was able to pass, um, a funding bill that, um, that gets us through. It gets most agencies through, uh, uh, February 2nd, although they kind of did a bifurcated approach. So there's some that have to be they'll have to be a bill before January 17th.

Roger Harris: And so this is kind of where we might get off the rails here. But the parties do have different approaches [00:10:30] to taxes and small business and government. And so who's in charge matters. Um, because they set the agenda. And so to your point, Thad, we went through weeks with no speaker where nothing was getting done to then trying to figure out where does this speaker want to take everybody and, and correct me. But I think in one of the, uh, funding bills, he proposed to take more money from the IRS or it's it's out there hanging now. It's [00:11:00] it's the one that's. Yeah. So I guess we're waiting for the Senate to that was one of his to that.

Thad Inge: That was one of his big proposals was um the Israel funding bill. So of course, you know the big topic, right. You know, one of the big topics for Congress right now is funding for Ukraine, funding for Israel. And how do we handle the border and and also Taiwan. Those are all kind of being, you know, lumped in and potentially one package. But the first proposal that the speaker came out with was [00:11:30] I think it was around $13 billion for Israel, and it was fully paid for by um, taking, you know, the 13 billion from the IRS, from that $80 billion, you know, original pot. Um, interestingly, you know, when when Congress looks at papers, they get scored, sort of what are the budget implications? And when that one is scored, it actually costs more money because you're taking away from IRS enforcement their ability to collect money. So [00:12:00] on paper that costs a lot more money than, than actually paying for it. But it was more of a, you know, a political statement that, all right, we'll give Israel money, but we're going to take it from the IRS. Um, that was obviously a nonstarter with Democrats, a nonstarter with the president. And so that's not going anywhere. But it sort of delayed the Israel funding and kind of the goodwill on in terms of how they move forward. I think now they've punted over to the to the Senate to figure this out. [00:12:30] And it looks like they're going to lump everything together, probably include the border. And so we'll see if they get something done before Christmas. I think that's obviously the goal. Um, but with the with the budget stuff punted until next year. Uh, you don't have that end of year package must pass package. But this is kind of become it just because, you know, Israel and Ukraine are such big issues.

Roger Harris: Yeah. Because usually at the end of the year that you find some sort of bill to attach some year end extenders and things like that in that always drive us crazy [00:13:00] because they change the rules at the last minute, some of it retroactive. So yeah, it can be retroactive.

Annie Schwab: You never know.

Roger Harris: Yeah. But yeah, the IRS is the easy whipping boy, you know, as you said, you know, let's take money. I think there was even something in that bill about withholding money for guns and ammo or something from the IRS. Well, I'm sure that that's a big dollar item at the IRS. Yeah, yeah. You know, so that's where politics creep into this stuff. We want to make a political statement. And what [00:13:30] better? I guess nobody has ever gotten elected going home and bragging about giving the IRS more money. So it's an easy, easy thing to do. But, you know, it's unfortunate because those of us that have to work with the IRS every day know that they need to do a better job. And some of that takes money. Now. Again, they have to do a better job with the money they get. But there's only so far you can strip people of money and have an IRS that we want. So so we, we think we have survived through the end of the year. Um, [00:14:00] government's not going to shut down before December means we may or may not get any tax packages, but but Annie and Thad, what what is the potential for any taxes down the road, changes in this political environment and not just tax changes, but could it impact the IRS? Could could they lose their money?

Thad Inge: Yeah. And I was with a congresswoman this morning on Ways and Means. And she said we're going to get a tax package. We're going to get an extenders [00:14:30] package. We just don't know when. Um, yeah. Which that's and uh, I think that's the, you know, the magic question of when I can pretty much say 99% it's not happening before the end of the year when they punted the budget stuff that took away the, you know, the opportunity for that to happen. Um, and there's also a question of how you pay for a tax package. And so there's kind of two buckets of, of [00:15:00] provisions out there. Main the primary ones there are the business extenders. And these were um, provisions that came out of the 2017 tax law, um R&D immediate expensing being the big one. Um, that moving to having to, to take that over five years. Um, obviously the business community, large businesses that do a lot of R&D are very focused on that. Um, but also small businesses. We've we've heard from a lot of small [00:15:30] businesses that, um, that do have R&D, where if you get that tax bill, it can be a real killer. And so there's pretty much bipartisan consensus that that needs to be fixed. Um, the question is what goes along with it? And the other two big, um, big ones are bonus depreciation and interest expensing. Both of those got scaled back in the 2017 law as well. That's being phased in. And [00:16:00] so those are the business extenders that that the business community would really like to get passed.

Thad Inge: That does impact people's bottom line. Um but then there's the child tax credit uh, which was heavily enhanced, as most folks will remember during Covid, those enhancements have expired. There are a number of Democrats and some Republicans that have said we would like to, um, you know, enhance it. I think it would bring it back back to where it was during Covid [00:16:30] because that was, uh, you know, very expensive and, and, um, and some pretty big credits. Um, but a lot of Democrats, I think, of Chairman Wyden on the Senate Finance Committee has said if we're going to give businesses the R&D and all this other stuff that was supposed to pay for the 2017 law, then we want something for families. We want to do this child tax credit. You know the problem. As it's all very expensive. Um, and so they have to strike a compromise kind of, [00:17:00] uh, between those two things and then how you pay for it all. And, um, there have been lots of talk of conversations around that, but we it does not seem like they've found the secret sauce. And then when they do eventually strike that deal, there has to be a vehicle and, you know, there will be stuff moving in the new year. So that's not off the table, but it's going to be a challenge. I think, uh, everybody would like [00:17:30] to see it, you know, in the first quarter or the first half of 2024, I think. But whether it actually all just.

Annie Schwab: Have to get along, right? Yep. Can't we all just get along?

Thad Inge: Exactly.

Annie Schwab: Agree on something. Compromise. I feel like we hear more and more about, you know, about that. It's just it's so hard to get something through because everyone is just so rigid or, I don't know, maybe that's the wrong word. Yeah.

Thad Inge: And you've got provisions that everyone agrees on like R&D. You [00:18:00] know, pretty much everybody agrees on it. But they also but Democrats also know. Well, if we just pass that, then we'll never get the things that are our top priorities. Um, and so strategic planning. Exactly. And so it's, it's easy to, to, you know, kick the can down the road. Um, yeah. And um, and so, you know, the hope is that I think for most people, the hope is that that doesn't happen for too long because election years are hard. Next year is an election [00:18:30] year. Um, right. It's kind of a myth that no legislation gets passed during election year. If you look back at election year, a lot of times big legislation can get passed. Um, but there's obviously, um, challenges in the election season one being the calendar. They normally, you know, uh, towards the end of the year or not, not in session as much because they want to go home and campaign and that kind of thing.

Annie Schwab: I was about to say we might have a we have a month, but what what really do we have? The whole month of December is not [00:19:00] really open. Yeah.

Thad Inge: And I think, I think December in the tax space nothing's going to happen. I mean it they might have some conversations but but nothing's gonna happen. But but when we get back for, you know, when we get back in January, um, they're going to have these spending bills that they have to pass. And so it would give a vehicle if they're able to come up with something. But I'm not overly optimistic. And then there's lots of those are kind of the core provisions. But right. [00:19:30] There's things like um, the salt tax, which, you know, if you're in New York or New Jersey or Illinois. Yeah. Uh, that's been a major. The the cap, um, has been a major issue. And so you've had members on both sides of the aisle pushing for that. But that's another one that's very expensive. Um, and it was interesting that became an issue during the speaker's race because some of these, you know, for a [00:20:00] speaker to get elected, they could only lose four Republicans. And you had, uh, Republicans in New York from a lot of these, you know, divided districts, moderate districts, um, uh, whose constituents really care about the salt cap because it's costing them, you know, a lot of money. Um, say we're not going to support a speaker unless they're willing to, you know, advance this or give us a vote on this. And so you actually had Speaker Johnson meet with the New York delegation [00:20:30] and promise he said he didn't promise to get it done, but he promised to give it fair consideration. You know, and it's one of those things that there's sort of a urban rural divide, um, because it, um, you know, it does favor the high tax states, like, like a new Jersey or a New York. Right. And so how something like that plays into an eventual tax package, I know we'll want to talk about 1099 K, because that was the that was the big one that was out there. Roger. You spent a lot [00:21:00] of time on the Hill talking about 1099 K.

Roger Harris: Yeah, probably. That's where you learn the most about how frustrating. Uh. Politics and taxes can intersect because we all know. Well, let's assume maybe you don't know. Let me start by reminding people that the IRS issued some guidance. And when was it last week? A week ago. It was.

Annie Schwab: Yeah, it was last week it was.

Roger Harris: Well, depending on when you're listening to present for us could have been six months ago depending on when it.

Annie Schwab: Was right after Thanksgiving. Yeah. Right. Or [00:21:30] the week of Thanksgiving.

Roger Harris: Basically delaying the $600 threshold that we had all been complaining about and taking at least a year off and then going from 600 to 5000 and then eventually going into where we are today, where that's relevant to this discussion that we're having here is that and I don't know how many meetings we had gone to in DC talking about what a catastrophe potentially this new lower threshold [00:22:00] was going to be on taxpayers, tax practitioners and the IRS. And Thad, correct me if I'm wrong, but it didn't matter whether we were talking to a Republican or a Democrat. Everyone, in hindsight, even though they're the ones that passed it, agreed that 600 wasn't the right amount of money that it needed to go up, so no one disputed it, and yet no one had a vehicle or a way to do anything about it. [00:22:30] So it's one of those things where you have a meeting and they agree. You're right, this is bad, but we can't fix it. Yep. And and it took the IRS to fix it on their own. Yeah. At least temporarily.

Thad Inge: And this one started, you know, percolating a while ago. But at the end of last year it you know, it became one of these end of the year. We got to do something about this because, you know, it actually went into effect in 2022. But it was in a you know come April and Deloitte [00:23:00] had to pay their 22 taxes, was in a um, have big implications and there were some bills to just delay it. And the funny thing, you know, this is, um, classic Washington. But the funny thing is, I think the the Democrats had a bill to delay it for one year, and the Republicans had a bill to delay it for two years, and they couldn't agree on whether to do 1 or 2 years. And so it didn't get done. And luckily the IRS, but they Congress [00:23:30] did call on the IRS to, to to provide some kind of relief. So the IRS came out last year and said we're going to delay it one year. Um, right. And there started to be there were some bills, you know, early on that that said, let's do it at 5000. And then other people wanted it at 20,000. And there started to be some, um, coalescing around some common numbers. So one that came out was a, was a bill to make it $10,000 where you had I remember that Sherrod Brown from Ohio, [00:24:00] uh, who's up for reelection and Senator Cassidy from Louisiana co-sponsored that bill. And, um, and so it seemed like, all right, we've got some bipartisan agreement that seems like a level that most people could live with, um, $10,000. Um, but to Roger's point, uh, it sort of, you know, Congress is very hesitant to just go pass, um, sort of one tax provision. Uh, it's hard for Congress to [00:24:30] not do things when it's unless it's a big package. It kind of opens up a can of worms. People say, well, if you're going to pass that one, why don't we include this one?

Roger Harris: What else do we add to it? Right, exactly.

Thad Inge: And so that's, you know, normally it's a big train at the end of the year that everything just gets added to. And so, um, um, that was one of those provisions that was kind of waiting out there where if there had been a big end of year package, I think 1099 would have definitely been part of it. And they would have they would have been able to come around [00:25:00] to a common solution. Um, but when they kicked this spending bill into next year, um, they would obviously been some conversations in the administration and, and other places that, that they did not want to see this 1099 thing blow, blow up in their face. And so. Right, you know, I, I didn't really I'll be honest, I didn't really predict that this was going to happen. Um, it.

Roger Harris: Seems like any of us.

Thad Inge: Did. Irs was a, um, was [00:25:30] a little smarter, maybe a little smarter than we thought they would be and was actually ahead of this. And so they came out just before Thanksgiving and made this announcement. And and the interesting thing was, it wasn't just fixing it for 2023 by delaying it a year. But then they said, we're going to have this transition period for 24, where we'll set it at $5,000. Uh, we'll also come out with some improvements to the 1040 and, um, and do some other things to try to make the reporting [00:26:00] process easier. And so, you know, I think, Roger, you had made the point yesterday that this does give Congress more. More time. It really gives them. Yeah. You know, gives them.

Roger Harris: Really two years.

Thad Inge: It gives them two years to fix this. Um, and so and then even if it's not fixed, you know, I think nobody wants it to go to 602 years, but it, it does it does provide that transition where, um, where that won't hit people immediately. And [00:26:30] so, yeah, I applaud the IRS for getting this done. And I think that.

Roger Harris: Without a doubt they had to step in. You know, to your point, whether it's because they can't pass a simple bill to fix a problem unless because it becomes too big a bill or we can't agree on something, Congress is just not quick to act even when they agree on a problem. And what I found really humorous is the IRS, which again, I applaud. I, you know, uh, we definitely all of us needed [00:27:00] this delay or whatever you want to call it. But as soon as the IRS did it, members of Congress were critical of the IRS for overstepping their bounds or saying it was unconstitutional. I'm saying, well, you can't agree it's wrong and it needs to be fixed and then criticize somebody for fixing it when you didn't do your job, when you could have fixed it.

Annie Schwab: Well, you could have done.

Roger Harris: It. It's it's, you know, that what's what makes going to Washington so much fun is you just never know. You know, logic [00:27:30] doesn't matter. You know, you just sit there and realize, I just have to understand. I can't walk in here and expect this place to work like everything else. Yeah, because it doesn't.

Thad Inge: Yeah. You have to have a short memory, you know, in DC because I think about the the R&D tax credit, that was the pay for, for the for the Trump tax bill in 2017. So you know, I mean, there were a number of papers, but the reason they phased it out is they needed money to pay for the other the other cuts. Um, but [00:28:00] now that sort of number one priority, you know, for the, um, for all the folks that supported that bill, uh, it's the number one priority. We got to get rid of this jobs killer. You know, this is this is the most awful thing in the world. And some people say, well, we said that back in 2017, you know, but, um, but that's sort of how it how it goes. You deal with it, you deal with it down the road. Yeah.

Roger Harris: Before we jump into the IRS, I'm going to ask you something that we really [00:28:30] haven't talked about, but something you mentioned. We have the Tax Cut and Jobs Act set to expire at the end of next year. And if it expires, we just go back to what the law was. It was prior to that. So what's it been? How many years? Eight, ten years that we've had the Tax Cuts and Jobs Act?

Thad Inge: Yeah 2017.

Roger Harris: Now what is the chance that Congress can come to a. Decision or resolution to [00:29:00] decide what's going to happen. Is it just going to run out and we go back? Is it going to have to wait till after the election? I mean, is anybody up there even thinking about the magnitude of. Changing radically the tax law back to what it was and throwing it all out versus keeping the good, the bad. Is anybody talking about it, or are we going to have to wait until we see who controls?

Thad Inge: I was at this event. I was at this event this morning and [00:29:30] it did come up. Someone asked whether conversations were happening and these Hill TAC staffer said, well, we're starting to talk a bit about it a little bit. They do have um, now it'll be here before we know it, but but I think most of it's end of 2025 that it expires. And so we're looking at probably, um, after the election, I think one of the challenges is, is there's so many big fires immediately in front of Congress. [00:30:00] Like, are we going to shut down tomorrow or are we done? A, you know, how are we going to that it's hard for them to focus on kind of the the longer terms, what's something that's going to happen after the election. Um, but this is going to be huge implications, as you guys well know. Um, for the tax code for, you know, for tax professionals, because everything's going to kind of be on the table and they're going to have to address it, um, one way or the other, I don't think [00:30:30] I think probably doing nothing and letting everything expire is not really a feasible option for, for anyone. Uh, now, will it, will everything get continued and, you know, its current form? No. And we'll have to see who's, you know, who's the president of the United States, then who's the speaker of the House, who's running the Senate? I mean, all those things could could potentially be mixed up. And so, um, but this is going to be, you know, the tax extenders package that [00:31:00] we're talking about now, the R&D and stuff that is just small potatoes compared to what this will be, what what this is going to be. And yeah, and it.

Roger Harris: Comes down to whether one party controls everything, whether one party controls two chambers, one chamber. I mean, you know, this is where politics and taxes are going to intersect, because I agree, I think the two extremes of doing nothing or keeping it all are probably not. Well, there's a greater chance of of it just expiring because they do nothing. That's what happens if you do [00:31:30] nothing. But. Yep. Uh, well.

Thad Inge: And if you.

Roger Harris: Look at I can't imagine that happening, if you.

Thad Inge: Look at the Bush tax cuts, they expired under President Obama. And so that was a similar question of of. You know, Democrats have been running against the Bush tax cuts, you know, every election. Oh yeah. These were horrible. Yeah, but it's hard. But once you get in office it's hard to take away a tax cut. And then you also had um Republicans controlling I think at the time at least, you know, [00:32:00] at least one House of Congress or they definitely didn't have Democrats definitely didn't have 60 votes in the Senate. And so it ended up being a compromise where where I think Obama said we're going to keep them for anyone making below, you know, 300,000 or whatever. And then we're going to phase them out for people making more than that. Even though things seem pretty divisive back then, I think, um, it's probably worth, you know, potentially worse. Right now it's worse, but hopefully that but it's going to be a lot of for folks [00:32:30] like, you know, you guys that like to engage in these issues and, and, and have things you care about. There's going to be a lot of, um, a lot of policy decisions made.

Roger Harris: Yeah. And I think unfortunately, a lot of people in Washington, in the not speaking to you, speaking to the politicians, think decisions have to be made before you file your tax return, but planning goes on well before that in terms of trying to plan your your businesses or your personal finances. And it's [00:33:00] hard to do when there's uncertainty about what the what the rules are going to be, what the laws are going to be. Because sometimes what's a good idea under one set of laws is the absolute worst idea if it changes. And so, yeah, you know, we need some certainty there. But you know, that's just that's out on the horizon. And I agree it's not today's problem. So we'll have a few people. But anyway let me ask you a question before we jump into the IRS stuff how we've talked a lot about the IRS budget and the impact [00:33:30] on it. What have our folks seen, better or worse, when the after the IRS actually got some money to do some things?

Annie Schwab: I think if there's one thing I had to say, it's having the customer service, um, for the callers, for processing, um, money put there to improve that because we had so I mean, the wait times, the, the call back feature, there's a lot of things that we were [00:34:00] frustrated with and have seen improvements, including some of the abilities that they've built in with their online services. Um, some of the tools that are now available online. I think that's great, a wonderful enhancement. They got that out pretty quickly. Um, I don't know. I mean, what do you think? Where where are we going? Especially if they keep clawing back funds. What can we expect?

Roger Harris: That's the priority. How does the IRS make plans when their budget really, in theory, is long terme, but it's at the whims of of [00:34:30] a vote, right? I mean, it can it can be stripped back. So they first of all, talk a little about what the IRS has told us their plans are with the money and then talk about that in light of, you know, how do we know if they keep the money or, you know, again, how do we recognize when it's a political stunt, which this last one clearly was? Because if it comes out of the House, it's not going to pass the Senate versus, you know, plus the, the, I guess, [00:35:00] spending or not spending, the scoring of a bill where to the average person, cutting a budget should save money. But the reality is it cost money, because what is the action that the cutting of the spending does and how it factors in? Because I've never understood spending, uh, and scoring in Washington because it's not always again logical. Yep. And I don't know.

Thad Inge: So yeah, I'll address them. How does the.

Roger Harris: Irs function in this kind of environment. [00:35:30] Political environment.

Thad Inge: Yeah. So I think the, you know, the the flexibility in that what was initially 80 billion was that they had nine years to spend it. And they and it wasn't annual appropriations. So they could spend it as they could take all nine years to spend it. Or they could spend it in two years, three years, you know, it's impossible to spend that much money in two years. But but they, um, they had some real, um, flexibility. And all along, you know, [00:36:00] the concern was, all right, if they get this money, they're going to have to, like, really have a plan and really know how to spend it. Well, and, and we'll talk about, you know, what they're doing in that front in a second. But in terms of the rolling it back, you know, it's interesting because there were folks that said, oh, they better spend it quick because this money doesn't get taken away. And I was kind of like, well, you got President Biden and the white House that.

Roger Harris: Will backstop.

Thad Inge: You know, he's the backstop. He's not gonna [00:36:30] allow this money to just be taken away. But when you get in a negotiation, like on the debt ceiling and you're looking at the government defaulting on its debt, right? All of a sudden to him. All right. If I have to shave 21 billion but save the government from defaulting, it's worth it, you know. So it does. You never know when it when it does become like those that are for it will defend it, defend it, defend it. But at some point they might be willing to compromise it away. I think that [00:37:00] at least for the short terme, that's probably not going to happen again. You know, they've got the debt ceiling dealt with. They're not going to use this to pay for, for Israel. And so I think the 59 billion is pretty much a safe number, although I say that sort of until the election. I mean, if there's if we have a, you know, a new president or a new Congress or anything, that anything's kind of on the, uh, on the table after that, um, in terms of the plan. [00:37:30] So when this money first got passed in August of, of 22, that was before Werfel had been confirmed. I mean, Werfel wasn't confirmed until the fall.

Roger Harris: He had an acting commissioner, right?

Thad Inge: We had an acting commissioner. But Yellen uh, Secretary Yellen at Treasury called on, uh, the IRS to come up with a strategic operating plan, um, uh, on how they would, you know, spend the, the, the 80 billion. And it was, um, you know, it was pretty high level, but they kind [00:38:00] of laid out, uh, they ended up laying out five objectives. Um, it was to dramatically improve services, uh, to help tax payers, which Annie mentioned, uh, to help them quickly resolve taxpayer issues as they arise, uh, to focus on expanded enforcement, uh, especially those with complex tax filings, um, and high dollar noncompliance. Uh, you know, the tax gap was sort of a part of the messaging around all of this, [00:38:30] um, to deliver cutting edge technology, uh, and data and analytics to operate more effectively. We all know that IRS is way behind the times when it comes to technology. Um, and then it was to attract and retain, um, a highly skilled workforce. Um, that's another area where it's very hard with the IRS to compete with these large corporations partnerships when they have hired the the best and brightest. And, and, you know, if the IRS is under-resourced and doesn't have [00:39:00] folks with the same expertise, how do you how do you, you know, hold them accountable? Um, and so that came out, um, I think they actually released it.

Thad Inge: They held it for a little while, released it shortly after Commissioner Werfel was was sworn in to office. And, you know, Werfel does have a did have a and does have a very strong background in sort of major government projects. He had [00:39:30] done a, you know, of course, he had been at OMB, he had been at IRS before, but he had also, as a consultant, done these big projects at DoD trying to transform technology and upgrade their systems. And so they've rolled out a number of initiatives. Um, there's the paperless processing initiative. There's um, they're updating the Tax Pro accounts. I think, um, the feedback I've heard is, you know, while they've made some progress [00:40:00] on the paperless front, they've, you know, they've done a lot where you can upload statements. These things are all be a work in progress, like right, the tax Pro accounts. I heard some tax professionals last week talking about or two weeks ago talking about all the problems and the updated tax account. And your folks, you know, probably know about this better than most people. But, um, you know, there are new tools and features, but they don't always work correctly, which sometimes creates, sometimes creates more headaches than they solve. [00:40:30] Yeah, IRS doesn't do a lot of beta testing. They just kind of roll it out and we're done.

Roger Harris: Let's put it out there.

Thad Inge: You guys are familiar with that.

Annie Schwab: That's a good point.

Thad Inge: And so Annie, I don't know what you guys have seen on that stuff, but, um.

Annie Schwab: We've had some frustrations with it. I mean, the I, we've seen improvements, but there has been frustration, just like you say. I mean, we see progress, but at the same time, there's still some, you know, glitches, let's say, in the process. But, you know, I know they rolled out the business, uh, online [00:41:00] accounts too. So hopefully they'll, you know, those won't be as difficult. Yeah. I think their.

Roger Harris: Heads in the right place, you know, and yeah, they're trying to do the best they can, but they're still dealing with old technology in many instances and things that seem every day to you. And I just aren't that easy. And, and we have to talk about Irtc or our podcast doesn't count. And we'll talk about it in a minute. But but you know, there's so much red tape and, you [00:41:30] know, verifying and double checking and all these sorts of things that they have to go through where a business just says, we got to do this, let's do it now. Boom, let's do it. And we have technology and gets done. I don't know how many people have to sign off on something at the IRS, but it's a lot, you know, of anything major. Yeah. So. So we think we got. We'll keep some money. I never heard you say that. They still. They're still planning to hire 84,000 armed agents or that kind of. Has [00:42:00] that gone? Well, I guess they took the money. They took the bullets and the guns away. So they can't do that. I mean, that that's that's the kind of stuff that just drives me crazy when I hear that and go or really people who believe that that's what's happening, that there's all of a sudden going to be 84,000 armed IRS agents roaming the streets of our cities to do what I don't. Anyhow, let's move on to IRC because we have to talk about it. So Thad, talk a little bit about kind of where the IRS [00:42:30] is right now. I know this is not a political thing. This is, I guess, in the hands of the IRS, but kind of give us the state of where we are today. We're still in a moratorium as we record this. We still don't know how to pay the money back if we've already deposited it. But, um, what's the IRS saying? Where are we? We're getting close to the end of the year when the moratorium was theoretically going to be removed but lifted. What's where are we today with. Yeah. [00:43:00] So the IRC.

Thad Inge: So folks are still sending in. A lot of people are still sending in their amended 941 claiming the IRC. And so there's a place on the IRS website that will have the the updated numbers for a number of, you know, where where the backlogs are, what's been processed. And I've been checking I haven't checked it in the last week or so, but I will occasionally check the 941 X. And that has been a roller coaster, you know, the last 2 [00:43:30] or 3 years where that number is. They did make some significant progress. I think it got down to maybe a few hundred thousand backlog since the moratorium that has been climbing. It's up. When I checked, I think as of early November it was around 950,000, um, backlog. And so they're going to have a big backlog of, of 941 X's to work through. They have and they all have to.

Roger Harris: Be done manually. There's no.

Annie Schwab: Right. It's all.

Roger Harris: Paper. It's all paper.

Thad Inge: And they've said from the beginning [00:44:00] that, um, they would you know, the deadline for I think the 2020 ones is um, is coming up in the spring of, of 24. And so they have said we will we will get to these before, before that, um, statute before that statutory deadline. And so, um, so they're going to have a lot of work to do. Um, yeah. As you said, they, you know, they rolled out the, the guidelines for how you could withdraw. [00:44:30] We're still waiting for guidance. You know, we've heard it's in clearance, but for guidance on how you pay it back, if you realized, you know and and we'll see what that looks like, what kind of incentives that has. There are two sides of the coin. As we all know, the fraud was horrendous and we all know about the fraud. Yeah. You also hear I've been in congressional offices and they're like, we've got a constituent who's been waiting two years. That was a legitimate claim. And it's caught up because of this and that. And, [00:45:00] you know, the congressman's trying to call the IRS to see what's going on. And so there's frustration. You know, I think that, um, you know, people understood why they did the moratorium because of the fraud was getting out of hand with the mills and everything else. Right. But you've also got a lot of small businesses that are frustrated, uh, with the backlog. They, you know, I don't think this will fix anything for Ertc, but the IRS has said they are making the nine 4941 ex [00:45:30] electronic for tax season 2024. Um, what that means in terms of electronics sometimes, you know, I don't know if it's going to be a fully automated process or just something where you could submit it, you know, online. But yeah, this paper, um, you know, you just think about that. The almost a million backlog ertz's still.

Annie Schwab: And then I'm trying to like, picture this room. Like, is it just stacks and stacks and stacks. Is it tables? Is it boxes?

Thad Inge: There were those articles during [00:46:00] Covid where that's literally what it sounded like. Cafeteria. Yeah.

Roger Harris: And someone's got to open and process every one of them manually.

Annie Schwab: And how do you know where you are in line like yep. That's are they actually first come first serve.

Thad Inge: That's and I've heard of people getting lost or whatever of course. And then of course. And then one thing I know I've raised with you guys is I keep thinking about nine, four, one X's that aren't claiming the irtc. I mean, people have to file nine four that.

Annie Schwab: Are somewhere in that.

Roger Harris: Room too. Yeah, they're.

Thad Inge: In that group. And are they actually being looked at [00:46:30] or are they just getting lumped in with the rtc's.

Roger Harris: Oh yeah. And those may be, you know, just very important to that business, have nothing to do with the IRC. Exactly. And yet they're one of those 900,000 or whatever. How do you think they scored this bill when it was passed close to you? You know, when when we get into scoring, well, this will cost this.

Thad Inge: And I think you know that to me that's the big mystery. This when you look at the potential cost of this and I think they've yeah, [00:47:00] I'm hesitant to throw out a figure because I'll probably be way off. But I've heard some large numbers of what this because yeah, there.

Roger Harris: Was no limit to it. It didn't have a fund that it could eventually be like it was just now. Again, it happened in a pandemic. It was there to help people. I get all that. But this, this has no end in sight. I mean, people you can, as long as they meet the deadlines, can keep asking for more and more money. Yep.

Annie Schwab: Yeah, I'm sure they are.

Roger Harris: There you go. That's the thing. We scored this bill and [00:47:30] we know exactly what it's going to cost. And then we pass something like this and nobody's got a clue how.

Thad Inge: Much it changed. As we all know, it changed so many times. You know, the initial irtc was pretty onerous. And no one, not many people claimed it. People opted for PGP, but then when they came back and said, well, you can get both and we'll make it a little easier. Then the floodgates opened up. Raise the fraudsters.

Roger Harris: As we all knew would happen. When you hand out this kind of money with I.

Thad Inge: I'd be curious. Annie and Roger has has that calmed down? [00:48:00] I feel like I've seen less of it in the last few weeks, maybe in terms of commercials and stuff, but.

Annie Schwab: I'm still. I'm still seeing it. And we're still hearing about it. Yeah, I just think that people aren't. I guess with the moratorium, I feel like our tax practitioners are just sort of sitting tight and not really talking about it as much because they just feel like they're just stuck on hold, you know? Yep. Um, but.

Roger Harris: I've seen a little some.

Annie Schwab: Mills are they're. Yeah, they're still there.

Roger Harris: I think their message has gotten a [00:48:30] little different. I'm seeing more and more about. Yeah, we know we have to do it right and we'll do it right. And, you know, come to us as opposed to just, hey, 26,000 a person call us, you know. So yeah, I think they're trying to react to the negative publicity to say, I'm not part of this bad group. Yeah, but I don't.

Thad Inge: Well who knows? I know we've all got our stories and I've told I've told Roger this one, but I had someone call, and I always like to talk to them because I just want to, for my own perspective, [00:49:00] hear what they're saying. And so I said, well, I don't think I qualify. And I said I didn't lose any money during the pandemic. I didn't, you know, have any shutdowns. And they were like, well, they've made it really easy. They said, let me ask you this. Did you ever wear a mask?

Annie Schwab: Oh, gosh.

Thad Inge: And I said, how much does that work? I said, does that qualify you? And they said, well, it could, it could uh. Yeah.

Thas Inge: Um, yeah. Did you.

Annie Schwab: Did you get their name and number?

Thas Inge: And [00:49:30] then they said we're.

Thad Inge: Backed by Warren Buffett. I said, can you guarantee what if it I don't you know, they said, we can guarantee it. We're backed by Warren Buffett. I'm like, I'm sure he would love, you know.

Thas Inge: The fact that.

Thad Inge: His name is being thrown around. Have him have.

Roger Harris: Him call.

Thas Inge: Me.

Roger Harris: Let me talk to him directly.

Thas Inge: Exactly. Gosh.

Roger Harris: All right. Anyway, we're about to run out of time. You got any final questions or comments?

Thas Inge: And no.

Annie Schwab: This was fantastic that I have always enjoyed visiting with you. And I think our audience is probably [00:50:00] pleased with this podcast. And if so, please like us and share us and tell your friends about us. And you know, you'll see Roger and I again soon, but that we might get you back on here. Who knows when.

Thad Inge: Yeah. If we get some.

Thas Inge: Action on these closer, we get some.

Thad Inge: Action on these tax bills. I'd love to come back.

Thas Inge: Yeah, great.

Roger Harris: We do. I'm. I had a doctor's appointment this morning and they took my blood pressure. I'm glad it was before and not after this.

Thas Inge: Podcast.

Roger Harris: Talking about these kinds of things and the frustrations it probably wouldn't have. My blood pressure [00:50:30] would have been up a little bit if I had to talk about the frustrations of DC. But again, thank you, Thad. Thanks for for being here today. Thanks for everything you guys do on a regular basis. Uh, I'll see you in a few weeks and we'll go get frustrated again.

Thas Inge: And thank you, guys.

Thad Inge: Thanks for everything.

Thas Inge: Yeah.

Roger Harris: And and again, Annie. Thank you. Thanks, Thad. Thanks for listening. Hope you'll, uh, tell your friends about our podcast and join us in the future. [00:51:00] And thank you for listening, and we'll be back again soon. And I'm sure we'll be talking about the IRC on the next podcast as well. Thanks for that. Thanks, Annie, and thanks for listening.

Annie Schwab: Bye, everyone. Thanks.

Creators and Guests

Annie Schwab, CPA
Annie Schwab, CPA
Franchisee Operations Manager at Padgett Business Services
Roger Harris, EA
Roger Harris, EA
President at Padgett Business Services
Thad Inge
Thad Inge
Thad Inge is vice president at Van Scoyoc Associates where he works with startups, nonprofits, associations, and corporations from highly regulated and emerging industries. His areas of expertise include tax, tax administration, small business, benefits, fintech, and payments issues. Prior to joining VSA, Thad led government relations at Paychex, Inc., a leading provider in payroll, human capital management, and benefits services. Thad spent a number of years in government, including heading congressional affairs for the U.S. Small Business Administration and working on the U.S. Senate Committee on Small Business & Entrepreneurship. Thad graduated from Georgetown University and received his law degree from the University of Miami School of Law.
The Long Road to Tax Certainty
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