There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Roger Harris: Hello everybody. It's another federal tax update podcast. It's Annie Schwab and Roger Harris and we're in the middle of tax season. Annie, how are we doing?

Annie Schwab: Beginning of March. I can't complain that we've gotten this far through tax season. But I feel like this is like this is the crunch. This is it. We're like heading into the the hardest five weeks.

Roger Harris: Yeah [00:00:30] yeah. This is really when it starts. Um, I'll mention more about this later, but I actually listened to the CEO of the IRS went before the Ways and Means Committee on a hearing, and he made the statement that we were 40% through the filing season. So I guess that's.

Annie Schwab: I wonder if that's normal.

Roger Harris: Uh, he seemed to make it sound like of course he was trying to make everything sound good, but I mean. Right. Um, yeah, I guess I think he was basing it on the number of returns they expected. I don't know what from a date standpoint, from January when it [00:01:00] starts 26 January 26th.

Annie Schwab: It was open.

Roger Harris: Yeah. We're not 40% of the way through the number of days, I don't think. No. Well, we'll come back to there's some stuff there. Um, speaking of which we're going to because it is tax season. We, I'm sure you guys are busy and um we've got a lot of little things we're going to touch. There's a lot going on in the, in the legislative side. There's some stuff happening in the regulatory side. Just, you know, just a lot of things. So there's no single one topic for this. We're going [00:01:30] to kind of bounce around and kind of tell you what's going on. While you guys are probably tied down with, um, doing taxes.

Annie Schwab: Yeah, there's been a couple of things introduced. 1 or 2 things passed. Um, something proposed. Um, we've got, you know, some things from the house, some things from the Senate. Um, actually one thing which is fantastic was, has bipartisan support. Um, so we'll see what, see what happens in the next, you know, a couple of weeks.

Roger Harris: Yeah. [00:02:00] Yeah. Because, I mean, we all know that Washington doesn't work, you know, as smoothly and as predictably as we would like it. So things that look positive and you mentioned have bipartisan support, which would in the old days seem to have meant this is going to happen. Um, it didn't mean that anymore because there's too many politics going in. Um, I guess we'll start. There's a bill that was introduced about a week ago, a bipartisan bill. [00:02:30] This is on the Senate side, uh, Senator Crapo and Senator Wyden and one Republican, one Democrat. And it touches on a lot of IRS administration topics, which gives bills a little better chance to pass if it if it looks like it's going to make taxpayers lives a little better at the IRS, dealing with the IRS and other IRS issues. It has some support on both sides of the aisle. But again, nothing's guaranteed. And [00:03:00] there was a bill like that. And one of the reasons we're going to point it out is, uh, I think Annie, we talked about the House bill that put minimum standards for return preparers.

Annie Schwab: We did. It was one of our earlier podcasts.

Roger Harris: Yeah. Uh, that same language basically is in this bill. So it's got a Senate side and a House side now, and probably the Senate bill because it includes IRS stuff, maybe has a little better chance. A lot of the stuff is, I don't know, it's it sounds important. [00:03:30] And I guess in some ways it is. Um, some of the stuff you may not know that we'll get to the preparer stuff in a minute, but one of it is going to require the IRS to digitize everything, but you probably don't realize is some of the stuff you file electronically. They have to print out and put it in manually. So it's really not electronic.

Annie Schwab: So right.

Roger Harris: They've been told you got to make sure that that digitizes everything. Um, this one I find interesting [00:04:00] and we'll talk about the practicality of it in some, uh, things is they want to, they want the IRS to create a dashboard where if you go to their website, you can see wait times, you can see how the, how calls are being answered, how things are being responded to so that you get a, a sense of where things are and, and they, and the one thing they want to do and any I, you can tell me if our people have experienced this, the callback technology that they've implemented [00:04:30] in some instances. In other words, like you call and they say, look, we're on hold or we're busy. If you leave us your name and number, we'll call you back. Anecdotally, people seem to like that. They want them to expand that into a more robust, maybe offer it on all calls, I don't know. The legislation doesn't get that detailed. If you heard how that's working.

Annie Schwab: Yeah. There have been several of our offices who have done it, And I think they say like, it's got to be under I don't know why 21 minutes is like the the goal, but [00:05:00] apparently like if they say, we'll call you back as long as the callback time is under 21 minutes, it seems to be fine. Like that must be some sort of breaking point for the system. Yeah, I don't really know. But apparently that's that has happened before. And then there's sometimes like, I'm sure people get hung up on and they have to call back or, you know, somebody calls them back and they're not qualified. So then you transfer to somebody else and down the line you go. But I mean, I think a callback feature [00:05:30] is an excellent option. I mean, airlines do it. I mean, you know, all the different.

Roger Harris: Yeah.

Annie Schwab: You know, organizations and professions use it. Um, and I also heard that they're thinking about doing like that, you know, where the, the, you're on their website, you're doing something and like the bot pops up and it's like, how can we assist you? Like they're supposed to also be, you know, some other additional ways of communicating that, you know, hopefully will reduce backlogs and get [00:06:00] returns, you know, processed faster or notices taken care of quickly, those kinds of things. So I did, I did several of our offices have said that the callback system was great.

Roger Harris: Yeah. No, I think if it works, I mean, again, all this stuff is not, you know, something that's not out there, it's in the private sector. So what what they're really trying to say is, hey, IRS catch up with the private sector. Now, you got to remember that these are the same people who cut back their budget, which all [00:06:30] of this kind of stuff costs money. So while all these things I think are extremely, um, good ideas that you need people and you need money to, to get it done in a reasonable amount of time because I mean, by the time they get call back working, there might be something else that now you're behind, you know, you're ahead of where you were, but you're still behind the private sector. I mean, there was a lot of other things in there. They basically said that, you know, each year the taxpayer advocate has to make a report to Congress. [00:07:00] Mhm. And part of that is, you know, what's wrong with the IRS and what you know. And remember, the taxpayer advocate is, is it's an IRS position, but it's separate. It doesn't report to the commissioner. It's independent. And, um, it wanted to adapt a lot of their suggestions, um, which are usually well thought out in there. Also some hiring authority. I didn't realize this, that the IRS has some the taxpayer advocate who most of us who have tried to reach out to have said they [00:07:30] do a great job if and when you can get through to them because they're, they're overwhelmed for their staffing. And so some of the stuff in this bill would allow the advocate to hire differently and, um, hopefully make it more effective. So that's, you know, it looks good.

Annie Schwab: I'll take it.

Roger Harris: Yeah. I mean, again, it's and it's because of those types of things that this bill, as I mentioned earlier, includes basically the same language as the House bill did in creating minimum [00:08:00] standards for tax preparers. So that you've got to take CPE, you've got to pass a background check. Your PTEN can then be suspended if you do something wrong or don't do those things.

Annie Schwab: So it's continuing education of different things.

Roger Harris: Yeah.

Annie Schwab: Yeah. I found the bill. So I will say that the name of it, just so that everybody's aware, is called the Taxpayer Assistance and Service Act. So that's the name of it. And in all honesty, I think it [00:08:30] has been described as, you know, being very common sense proposals, um, to make, you know, the administration work fairer and faster and more transparent. So I. Well, while we said it has bipartisan support, it's pretty logical. Like it's really not, There's nothing in it that made me go, hmm. Well, that just seems ridiculous or or far reaching or something like that. I mean, I do think, I hope that this this can actually get through. [00:09:00]

Roger Harris: Yeah. And there's no real tax, you know, tax provisions can create controversy and people going to their corners. There's nothing in here that changes any tax laws or rules or makes some one person pay more tax than somebody else pay less. Right. Strictly IRS administration and then the tax return preparer, uh, standard. So again, I think it's got it's probably got a better chance than the House bill, which is just the preparer standards because again, these IRS [00:09:30] things, as you mentioned, are common sense. I mean, how do you oppose them? How do you say, oh, that doesn't make sense. We shouldn't do that. Now, a question. If you're going to ask them to do all these things, are you still going to give them the the resources?

Annie Schwab: I know I was wondering, did you get any sense of, like, how much this cost? I meant to go back and look through it and see if there was any kind of estimation of the amount of dollars it would take to, to carry out all these proposals.

Roger Harris: But no, [00:10:00] and I think that's because they don't really consider that relevant, which I think is pretty relevant. You know, it's, hey, go do these things. Um, you know where it's going to come from. I mean, I think we, if I remember, if you think back, we had a Thad Inge on one of our shows and I asked him the question, you know, they keep falling back to, well, we're using Inflation Reduction Act funds. Yeah. And you know, that was passed, I don't know, that was passed obviously when Biden was president. And I said, how can they still have this money when they're cutting all these budgets? And and [00:10:30] he mentioned that it was sitting there in a separate I'm not bank account, but just sitting out there. And unless Congress touched it, it was still available. And the day after we recorded, Congress touched it and took some of it away for something else. So yeah.

Annie Schwab: So maybe maybe that pool of money is still sitting.

Roger Harris: Maybe some of it is just not as much as it used to be.

Annie Schwab: And it's it's quickly diminishing.

Roger Harris: Yeah. And it's not safe by any stretch of the imagination. But again, hopefully, uh, you know, all these other things are important. And I think [00:11:00] all of the stuff in there is important. We would just really like, I know most associations that, you know, most of you are members of, are in favor of, uh, some sort of regulation on tax preparers and somewhat stronger. Some want less strong, but I think this is a good place to start. So at least we can, can say everybody that's in the system has some, um, skin in the game that can be you can't, like I said, drive a truck on Monday, do [00:11:30] taxes on Tuesday. If you do them wrong, go back to driving the truck on Wednesday. Yeah. Nobody knows who you are, where you were. So that's one piece of legislation. It came out, um, haven't heard anything about when it's going to get a hearing or anything. But again, the good news is that there hasn't been a lot of. Oh, this is awful. We're not going to do this. I agree, it didn't poke anybody in a place they didn't want to be poked.

Annie Schwab: Let's just hope they don't slip something in that, you know, causes the whole thing to go [00:12:00] haywire. But, um. Well, I have a question for you, Roger. Have you heard about, like, the o. Bbba2 point oh? Like there's like a whole nother round of. I mean, the first round was large, like 109 pages or something. I can't even imagine what could possibly, you know, be in 2.0. But is that. Well, what's coming our way?

Roger Harris: Well, well, what they're talking about is using the reconciliation [00:12:30] process, which is what they used to get the OBB pass, which basically bypasses the filibuster. I mean, that's the.

Annie Schwab: I remember that that's.

Roger Harris: The big problem in Washington right now on getting anything done is the filibuster, which interestingly, you're hearing Republicans now talk about doing away with the filibuster. It used to be just Democrats. Now, depending on where you sit, the filibuster can even keep people from doing something that's crazy, or [00:13:00] it can be a hurdle to doing something that's good because it requires 60 votes to procedurally move the the bill or whatever it is forward, forward. And in our split government, that really means that it takes, you know, the parties to work together. So Democrats want to kill it for one reason. Republicans want to kill it for a different reason. And some on both sides say if you kill [00:13:30] it, we've just become the house. We're no longer the Senate. We're just like the House majority rules, and whoever's in charge is going to do everything they want to do. Another radical or not. So what they're what they're talking about is using this reconciliation process that gets around the filibuster. It can only be used a certain number of times. You only have certain kind of things in it, but they want to address some things. Um, really about it's the whole idea of affordability in some instances housing, you know, the cost of housing [00:14:00] and things.

Annie Schwab: Yeah, I saw it was dubbed, you know, making American Dream affordable again, you know, making the dream affordable again. Yeah. So, um.

Roger Harris: It talks about a limiting marriage penalties. I don't know if that's in the tax code or the mortgage world. I don't really know what they mean by that.

Annie Schwab: Yeah.

Roger Harris: Eliminating what they call the death tax, the estate tax, the.

Annie Schwab: Estate.

Roger Harris: Tax that's in there. You know, my sense is because it's it, this will have income. I mean, uh, budget implications because I'm while [00:14:30] it didn't, I haven't read any great detail. I don't know what they're going to change, but it's probably going to either cause some stocks go up or somebody go down, or we're going to give people credit for mortgages. I don't know what. So I mean, can they get another one through?

Annie Schwab: That's what I was saying.

Roger Harris: Yeah, I don't know given that we're having midterm elections this year. And um.

Annie Schwab: Yeah. Is anybody working in Washington just out of curiosity?

Roger Harris: Well, you have to define work. They show up, right? [00:15:00] Um, they don't always I mean, they're holding hearings on a lot of things now. Of course, now we have the whole, uh, Iran situation that's going to take a lot of people's attention for hearings. And I heard the other day.

Annie Schwab: Priority over some of the other stuff, for sure.

Roger Harris: They brought in a bunch of defense contractors to try to get them to speed up, you know, making more bombs and missiles and things like that. So I don't know that there's going to be enough to get anything [00:15:30] done other than the have to. They still we still got part of the government shutdown. We gotta remember that, right? Yeah, yeah. So I mean, at some point they're going to have to resolve that issue. So I don't know how much of these tax bills are going to get anybody's real attention before the election. Like I said, the first one we talked about, maybe because, you know, you get talking about making the IRS better during the filing season is popular.

Annie Schwab: Seems pretty popular. Yeah, yeah.

Roger Harris: Uh, but beyond that, I don't know [00:16:00] that there's the, the will to take on anything else.

Annie Schwab: Mhm.

Roger Harris: Um, and I think they're well, they're always talking about health care. Right?

Annie Schwab: Yes. Uh, I mean, healthcare for sure. Um, there are two kind of bills, kind of floating proposals kind of floating out there. One is on healthcare and that's, you know, what they're saying is, you know, we want to put patients back in control. We need, you know, to lower drug prices. Um, you know, ensure that, you know, American citizens, you know, reap the benefits of, of these programs. And so, [00:16:30] you know, I think that probably, you know, depending on exactly the specifics, which I don't, I don't have the specifics on it. I do think healthcare is I mean, during the elections, it was a hot topic. It's always been a hot topic. It will remain a hot topic. Um, so I don't think that's far reaching to think that we could get some changes as it relates to healthcare.

Roger Harris: I mean, it has gone up. It is I mean, our company experienced significant increases. I know small businesses. I mean, it's it's gotten expensive. [00:17:00] And, um, you got to think at some point we got to do something, but can we get both parties to agree to what something is?

Annie Schwab: Yeah. It's hard and you're right. I mean, small businesses, you know, insurance costs are going up, medical costs are going up. Um, you know, it's something's going to have to, something's going to have to change or people are not going to be able to, you know, get care. Um, and I think that's sort of the, the momentum with this new proposed health care legislation. [00:17:30] So we'll see. I don't know.

Roger Harris: Yeah.

Annie Schwab: There's a lot of.

Roger Harris: Other stuff kicking around on crypto world.

Annie Schwab: Oh yeah, I did see that. Um, there are two different bills on crypto. Um, they're funny. They have similar names. There's the digital Asset market clarity act. So they're calling that one the clarity act. Um, and then there's a second one. Um, that's the parity act and that's the asset protection, accountability, regulation, innovation, taxation [00:18:00] and yield. So we've got all these fancy words flying around. But in short, what they're trying to do is establish some sort of regulatory framework, um, for, for all the digital assets. And then the, the magnitude of digital assets to me is mind blowing. But, you know, the Securities and Exchange Commission, you know, there, there are all of these companies that want to make sure that it's safe. People are reporting what they're supposed to be reporting. Um, the IRS [00:18:30] knows, you know, similar, um, Documents and things to prove exactly what's happening. Um, you know, and also our tax code is pretty old, right? So, I mean, there's a lot of things in the tax code that probably need to be updated for things like digital assets. Um, and, you know, even terminology or, you know, information in there that takes digital assets, cryptocurrency, etc. into account. So I don't know how important, [00:19:00] I don't know how much momentum this will have, but I'm not shocked. You know, we hear more and more about crypto. We hear, you know, now on tax returns, they're asking you about, you know, check the box. If you had, you know, had transactions in crypto. Um, I don't, I don't know, have you heard is there a big push or is this just kind of people throwing stuff out there?

Roger Harris: Well, I think, you know, and again, I keep going back to previous podcasts. We had a crypto person on one of our podcasts and yeah, he [00:19:30] was extremely smart, but I'm sitting here. I think he lost me.

Annie Schwab: He lost me too.

Roger Harris: I've been sitting here thinking, how can you know? Because I think more and more people are dealing in crypto every day. And yet, when you hear the complexity of it, when someone comes to get their taxes done, it's almost like you're going to have to find a specialist who deals in crypto. I just don't know. You know, if you do 1 or 2 people with crypto, are you really going to have the time to invest in learning [00:20:00] all the I mean, the stuff that guy said, you can go back and listen to it. I mean, it's you how many wallets and.

Annie Schwab: Yeah.

Roger Harris: This and that and you know, who, which, where is it? I mean, it's just amazing. But I mean, it's getting more and more in our life, you know, and it's kind of like AI. You can sit there and act like it's not there, but it is and so is crypto. So I mean, I think you'll consistently see changes in the law to try to figure out the changing world of crypto. I [00:20:30] just. Boy, I tell you what, it's it's intense.

Annie Schwab: Yeah. And I and I do think that there are, you know, the average Joe or whatever might be dabbling in it. And those types of transactions might be easier to track and report. And, you know, the one off like that is fine. But if you've got somebody that's like a day trader in this, I mean, that's a whole specialty right there. I feel like they could, they could build a dictionary just with the terminology associated with, with [00:21:00] crypto, because the terms are all, you know, all over the place. Yeah. Very intense.

Roger Harris: And if you're smart enough to know all those terms and do all those taxes, you better be charging a lot of money because.

Annie Schwab: Yes.

Roger Harris: Most people aren't, aren't, aren't in a position to do that. I think we can do the simple stuff, but right. People that, you know, deal in it, you know, buying things with it. And you know, well, we just heard, you know, the whole ransom thing in California, they wanted to be paid in crypto, you know, just because it's so hard to track. There [00:21:30] were a couple of bills that actually did pass that had some minor, um, things that helped us. There was the disaster related extension of the Deadline Act. I just love the way they come up with names.

Annie Schwab: I know there's.

Roger Harris: Somebody goes in the back room and tries to come up with a name where if you take the first letters, they spell something or something, right? Right. D r e o d a. No, I didn't spell anything anyhow. Pretty simple stuff. It just. It basically extended the deadline. If you're in a disaster [00:22:00] area for filing and refunds and things to be consistent with the actual declaration that extended deadlines, it wasn't a big deal. The other one that a lot of people were happy about that came about, you know, was the Math and Taxpayer Help Act or IRS Math Act, which talks about when when taxpayers get these math error notices that they have to be more clear and they have to be more understanding and spell more things out, which a lot of people, uh, cheered [00:22:30] this passing because it's clearly an area that a lot of times these notices, a lot of these notices go out, people don't understand them and that sort of thing. So those have actually passed.

Annie Schwab: And I'm not surprised. I mean, those are pretty logical, right? Like you're in a disaster area and you need you're granted more time. Let's align, you know, the IRS with what's happening and then the math act. I mean, come on, make it easier for people to understand what these notices mean so that they can respond and clear out, you know, clear these notices quickly [00:23:00] and more efficiently. I mean, those are pretty easy. Yeah.

Roger Harris: All right. Is there anything else from a legislative standpoint we need to talk about?

Annie Schwab: Um, we talked about sort of that barcode, you know, the, the technology, um, enhancements where they can use barcodes or scanning technology or, you know, optical character recognition, all of these sort of technology type things to digitalize tax returns. Um, there's [00:23:30] different names for different versions of the bills. But again, I mean, I do think that that could potentially, you know, be bipartisan. Um, and I think anything that makes life easier for the taxpayers and for the IRS to do their job, um, I did, I did see there's a new web page, um, the IRS launched, I don't know, maybe two weeks ago or something. And, and that web page allows people to report research, etc.. Frauds and scams and [00:24:00] illegal activities and all of these types of things. Um, and that, that would, you know, any type of, like you said, tracking what, what are the wait times? What's happening with the, the notices, what's happening with your particular case? Um, and then having a place to go to be like, is this, is this email legit? Is this what I'm getting real? Is this, you know, and, you know, an actual correspondence or being able to report something so that others don't also fall for it. So I thought that was a smart move. [00:24:30] Definitely beneficial.

Roger Harris: Yeah. Just going back to something we said earlier, the barcode, the name of the act. Now pay attention. Barcode automation for revenue collection to organize disbursement and enhance efficiency act. Guess what. If you take the first letter of the first part. Barcode B automation a revenue r collection. C organize o disbursement. [00:25:00] D enhance e guess what that spells barcode.

Annie Schwab: Yeah, I mean, you're right. There's a method to the madness as they name these things. Um, you know, but.

Roger Harris: It must be a whole department in DC coming up with names of.

Annie Schwab: Ai. I don't know how they're doing it, but, um.

Roger Harris: And going back to the scams and everything. I was in DC about two days ago, not two days ago, about ten days ago. And we got a briefing. And the scams, despite everything [00:25:30] we're all trying to do and all the the wisp policies we have and all that sort of stuff, it's still getting worse. I mean, there's still more and more of these things and it impacts more. And I'm talking about from the practitioner standpoint, where practitioners are being hacked and their information is being stolen. And it's, you know, and sadly, some of it is just you do everything right and they can still get it through. So this is going to continue to be a [00:26:00] big focus at the IRS, because it's still a huge problem. And the cost and the recovery to the practitioner and to the taxpayer is really severe. So again, I'm just going to tell you, everyone out there that's listening, whatever you're doing, do more. Uh, but you're still not going to be fully protected because these, guys or girls or syndicates or whatever they are, are really good. And they're and, and sadly, I think there's more than we [00:26:30] can count because some of it's so good that you don't even know what's happening to you.

Annie Schwab: Mhm.

Roger Harris: Um.

Annie Schwab: Yeah, we did a, we did a podcast kind of on, you know, ways to reduce your vulnerability, you know, having your, your clients, um, you know, get IP pins. Um, you know, obviously multi-factor, but I mean, there's, you know, you walk through that wisp, that written information security plan that, that all practitioners, um, not only should have, um, [00:27:00] but also revisit and consider the what's in it. Um, but there's, there's so many things that you just don't think of that the hackers think of very easily, you know?

Roger Harris: Yeah. And it just takes one little slip, one little careless moment by you or anyone in your firm. So it's, you know, yeah, employees can can create gaps and you just don't know it. And it's unfortunate.

Annie Schwab: Yeah. [00:27:30] For sure.

Roger Harris: Let's talk about the filing season. I want you to give me your perspective from what you're hearing. And I'm going to tell you what I heard the CEO at the IRS tell Congress this week. Let's see.

Annie Schwab: Okay.

Roger Harris: Let's see what matches.

Annie Schwab: So I have heard that refunds are going out, um, within that two week time frame. Um, I think refunds are higher. Um, we expected that with the new legislation, uh, dollar amount higher. Um, you mentioned earlier that we're, you know, at that 40% mark. I'm not necessarily shocked with [00:28:00] that. Um, I, I feel like the season started a little bit later, not much later, surprisingly, not much later. Um, but I, you know, I feel like that's a good number. Um, as far as, so the processing to me seems to be going okay. I think it's more of the Phone call issue. Getting someone who's knowledgeable on the phone at the IRS. You know, they've moved people around so many times, lost so many of the, you know, the qualified [00:28:30] or long term employees. Um, so while the processing seems to be going, okay, I feel like the online and the telephone line and dealing with notices type thing or getting somebody that can actually help you, um, on the phone is pretty bad. So I don't know, I'm gonna.

Roger Harris: Yeah. Do you think that's because I got a lot of new people? You know.

Annie Schwab: I think it's new people. I think it's people move from different departments just thrown in. I think, you know, the training probably was weak, [00:29:00] if at all. Um, and I'm sure I can't imagine the work environment there. You know, the, the morale has to be just so terribly low and the frustrations must be so high. You know, being on answering calls is one thing, but being on the other side of an angry taxpayer, you know, yelling at you. I mean, you know who wants that job really well?

Roger Harris: And this isn't really what I was going to talk about, but you're bringing up some things I heard about, you know, when the [00:29:30] guy was testifying. First of all, one member of Congress started his questioning with the CEO by saying, you've got to be the most hated. And just I'm paraphrasing here, it's not exactly what he said. You know, the most hated government agency there is or something to that effect, which is probably true. And then recently and again, I learned some things when I listened to this. The president said, we're no longer going to recognize the IRS union. Irs employees, [00:30:00] most of them, not all of them, but most of them are union employees. And so you talk about their morale or their attitude. So they were told, we're going to just ignore your union. You don't have any union to negotiate for you anymore. And of course, they all got upset. But then I heard again, I don't know. You don't know who to believe and who not to believe that they didn't need a union because their salary, their work hours, their everything. [00:30:30] It's important that a union negotiates is by statute.

Annie Schwab: Oh.

Roger Harris: And so if you know what, what do we need a union for? Now, I do remember an I r x x x telling me that there's not a lot they, you know, they don't set pay scales. You know, they can set the how you get them but pay scales are set. And he said all we can really talk about their office, you know just what's in their office. So but there again that's just one more thing that uh, is in [00:31:00] conflict. And regardless of what the union can do, I guess it's got to scare the devil out of the IRS employees that if they don't have a union who was trying to protect them through the layoffs and all of that sort of stuff. Yeah, you know, it could get worse. So. Yeah. You're right. I can't imagine what the morale is. And sadly, that's going to come through to the taxpayers.

Annie Schwab: Yeah. Well, and then the tax practitioners and the taxpayers, they're frustrated because, you know, they're getting notices. They're saying, [00:31:30] you know, you get a notice and then you respond to the notice and it says, the notice says, I changed your tax return. And then you call to say, what? What did you change? And they say, oh, we don't even have that tax return. I mean, it's just like complete nonsense, right?

Roger Harris: Yeah. No, we're getting some of that. Yeah. There's no. And again I think that's going to be where this tax season. And we'll talk about some of the guidance that maybe we're still not completely comfortable with. It's going to be the answering of the phone, the responding to notices, those sorts [00:32:00] of things. I think that technology of you send in your tax return, it gets processed, a refund gets sent. You know, that's probably going to be fine. I think so. Are all the forms out yet? Do we. Is there.

Annie Schwab: Any. Yeah, I think all the forms are out. The Trump accounts was one that was really late. Now, I can't speak for the states. I've heard from. You know, we have offices all over and there are some states that seem to be going very smooth. Um, there are some, you know, some of our offices in different states that are still struggling [00:32:30] for their forms to be to be finalized. Uh, but we knew that was coming. Um, you know.

Roger Harris: Yeah. And I see some things where states are still dealing with conforming to the changes in the big, beautiful bill, you know, whether, you know, like, what do they do with tips, you know, in.

Annie Schwab: Security benefits.

Roger Harris: Right? All that sort of stuff. So some of that, so I can, I can see where the states are kind of hung up on what to do because I mean, it has an economic impact to them, of course. And they didn't have any say so on the law just [00:33:00] here it is. And so, you know, in some and again, for some of you that don't file more than one state, some states follow very closely to the federal return. And it's basically just take the federal number and put it over here and tax it at the state level. Others are dramatically different. I mean, it's just like two completely separate adjustments here.

Annie Schwab: And you know, nontaxable there and. Right. All the different credits and all kinds of stuff. Yeah. That's true. Um, so what else did you hear about tax season?

Roger Harris: So let me tell you what the CEO said. Some of this, you [00:33:30] know, is consistent with what you said. Some of it's like, yeah, well, one of us is wrong. Um, I mentioned the 40, uh, percent of filing season, which I guess that's got to be number of returns. The other interesting stat that he mentioned is that these new things tips over time, social security schedule.

Annie Schwab: One A ones.

Roger Harris: Yeah, those schedule one, a 43% of the returns filed. And this hearing was a couple of days ago. So we're talking early March. 40%, [00:34:00] 43% of the returns that had been filed at the day of his testimony included that schedule. So one of those things was on it. Now, what really surprised me was which one of those things had the most on it? And I would ask you to guess, but I've already done that. So I'm not going to act like.

Annie Schwab: I didn't guess right for the audience.

Roger Harris: I didn't either. It shocked me. The largest number at this point of returns [00:34:30] that had a schedule one A had overtime on it, which to me is the most confusing one out there.

Annie Schwab: Yeah.

Roger Harris: Because there's the there's no real record keeping. There's no, you know, things like.

Annie Schwab: This on the W2. There's nothing, you know, you got to go back. But well, we did get that huge list of of industries that that qualify. So I guess if you're in that industry, you're coming up with an overtime number and putting it on a tax return.

Roger Harris: Yeah, I hope that just doesn't mean a lot of people who filed early just made up an overtime number [00:35:00] to get a big.

Annie Schwab: I would not be I would not be surprised.

Roger Harris: Nobody no, nobody could catch it. The other thing that I thought was interesting, he said that the average refund was going out in nine days.

Annie Schwab: Wow. So I did hear they were making it by their their, you know, 14 day or two week turnaround. If you, if, if you put your bank account in from, you know, all of these ifs nine days is fantastic.

Roger Harris: Yeah. I mean, I had no reason to question it. That's, uh, the other thing. Now, this one kind of surprised [00:35:30] me based on something you've already said. He said the wait time on the phones was in single digit minutes. So that's got to be less than ten.

Annie Schwab: Yeah, but the quality of the calls is what I'm concerned about. I mean, the wait times and the callback times, those are those I could see where maybe those are a little bit lower, but I don't I don't think the quality of the people on the other side or the knowledge of the people on the other side. I've heard almost all negativity. [00:36:00]

Roger Harris: Yeah. It's not worth the wait, however long it is.Yeah,

Annie Schwab: I don't know.

Roger Harris: But I mean, I've heard, you know, And that's what surprised me. I thought it would have been longer than that. The other interesting dynamic of the hearing was this is kind of where you see the politics of in this was had to do with audits. Uh, the Democrats were really pushing him, uh, because they had numbers. And of course, I'm sure he's got different numbers. You know, [00:36:30] everybody's got their own numbers, uh, that audits of the highest income people were declining in the audits of lower and middle income people were increasing. And what was he going to do about that? And when we have a I mean, first of all, it was sort of nice to hear them even asked about compliance, like it mattered.

Annie Schwab: Uh, yeah.

Roger Harris: But it's we're back into a political environment of, um, well, who should get audited? Uh, and at some instances, [00:37:00] I think they call things audits that aren't really audits. If you get a notice that your earned income credit was calculated wrong. A lot of people consider that letter an audit. What's not? You just did something wrong.

Annie Schwab: Yeah, yeah.

Roger Harris: We can we can do the math.

Annie Schwab: Discrepancy.There's, you know an error.

Roger Harris: But at least they're talking about compliance now. The the CEO and I would I know his first name is Frank and it's like Gusano or something. I was going to butcher his name. So I've tried to go as long as I could without saying it. Um, he [00:37:30] did say they were doing a study. The tax gap is obviously a big concern. It's always been a concern. We always talk about it. We don't do a lot about it. We always talk about it. And their goal was trying. What's the most effective way to close the tax gap without a preconceived notion of whether that's high income, middle income or low income? The question is where should we put our resources to do the most good to shrink the tax gap? Uh, and that he and Secretary Bessant, uh, [00:38:00] were doing that study right now and that, that would tend to guide their their enforcement activity, but at least they recognize they do have to do. Enforcement. So that's because we're beginning to realize that if you don't. Then everybody's just going to cheat and there's nothing you can do about it.

Annie Schwab: Right, right.

Annie Schwab: Well, this year it's going to be interesting because, you know. The IRS has given the employers sort of a get out of jail free card for, you know. Documentation and putting out the information needed for tips in overtime. [00:38:30] The taxpayers kind of have a, you know, do something reasonable, which in my opinion is also sort of a get out of jail free card. Next year will be different next year. There are, you know, specific reporting forms. Line items, um, required tracking documentation. So I do think this year there's going to be a lot of people that kind of do their tax return that best they can. Um, I think next year we'll have and hopefully we'll have additional guidance [00:39:00] and therefore it will make it a lot easier to, to do the right thing and calculate the right number and determine what needs to go on this line but.

Roger Harris: Yeah, I mean that's what shocked me about the overtime again, because that's probably the place where there's most businesses because they have no reason to didn't keep up with the overtime, you know, prior to the bill being enacted when they didn't even know it mattered. And yet it's the most commonly taken deduction on the, uh.

Annie Schwab: The new schedule. [00:39:30] Yeah.

Roger Harris: The new schedule through early. So maybe, you know, who knows what it'll be as we go through the rest of the filing season.

Annie Schwab: So the tips and the overtime and the Social Security, you know, I, we hear about that. I don't hear that much about the car interest, but you had an interesting conversation or you read an interesting article.

Annie Schwab: I can't remember.

Roger Harris: Yeah. Yeah. It's this is one of these things where when the tax law hits the real world and runs into common occurrences, you realize, wow, that's a great [00:40:00] question. And where's a battle? So yeah, I read an article and I have to admit, until I read the article, none of it even registered. But you all know that we can deduct what's at $10,000 of, uh, interest on a new car.

Annie Schwab: Vehicle interest?

Roger Harris: My car assembly in the United States. Okay. Seems pretty straightforward. I saw the other day. Ford Motor company. Here's your interest deduction. Okay, great. Simple. Well, the automobile automobile dealer associations [00:40:30] are fighting the IRS for some of the guidance that I don't think I've seen. And maybe it's because I'm not a car dealer. And so it just didn't really dawn on me. But let me give you a couple of common occurrences that we've all probably seen in my life, in our life, and where it is now hung up in a difference between what the car dealers want and what the IRS says. Here's the first one. The last car I got still have it was what you [00:41:00] would call either a loner or a demo where the dealer, you know, takes a brand new car and drives people around that come to their shop or something until it gets to about 2000, 3000 miles, and then they sell it. So to me, when I bought it, it was a new car.

Annie Schwab: Yeah.

Roger Harris: Well, the IRS has said that's not a new car because you titled it first to the dealer.

Annie Schwab: Yeah. So someone else had it first.

Roger Harris: So you're not the original buyer. So therefore, the interest on that car, even though [00:41:30] you paid the price, is if it were new, you might have got a little bit off because it's got a few thousand miles on it.

Annie Schwab: Yeah.

Roger Harris: But so, so that's one of the things they're fighting over. So that that car, because it wasn't titled straight to the, the next purchaser that the interest on that car would not qualify. That's a common occurrence. The second one, which again, I'm sure we have people that have done this and we may have even done it. You get ready to trade in your car and they say, well, your car is worth 5000, but [00:42:00] you still owe 6000 on the car. So we're going to take that thousand dollars difference, and we're going to add it into the loan that you've got for buying this car.

Annie Schwab: Yeah it's a great sales pitch.

Roger Harris: Yeah. So hey just don't worry about it. Well the IRS is saying that interest on that thousand dollars is not deductible.

Annie Schwab: Well, the record keeping on that was atrocious.

Roger Harris: So who in the world? And then remember, you got the car dealer over here negotiating [00:42:30] the contract, doing these common things that happens.

Annie Schwab: Making the sale.

Roger Harris: Making the sale. Then it goes to some probably third party that is the actual owner of the money.

Annie Schwab: Mhm.

Roger Harris: Who is the one who is going to report the interest? They don't know any of this stuff that's going on at the dealer level today. I mean, right now they don't they don't know that the loan came because you owed a thousand more that they don't necessarily know that this car was a loaner. [00:43:00] So the automobile dealers are saying, you got to give us some safe harbors or do something something. Yeah. This is common business practice. So it's a great example. And I have to admit now there was a there was a third one and I'll probably screw this one up, but it was still something that happens every day. The IRS had said, you know, if you buy a car and you buy an extended warranty with it, I think I'm getting this right. So don't everybody right. Tell me I screwed this up. If you. But that the extended warranty [00:43:30] portion added to the sales price would qualify. Okay, but if you bought an optional coverage that covered the tires and the wheels, it wouldn't.

Annie Schwab: See, this is just getting too complicated. It's too many specifics. It's. And what it's going to do is it's going to hurt the the dealerships, because the dealerships are now going to struggle to make sure that they're getting it right. And I mean, I guess I hope they get a safe harbor for this year. Because, I mean, those interest statements have gone out. There's, you know.

Roger Harris: People [00:44:00] issuing those statements. They don't even know what. They just know how much they loaned them and they know it was a new car. Now maybe the loaner, maybe there's some key there, I don't know, but it's to me, this is just a great example of it starts with Congress. Let's let's pass this to make people buy new cars. Right. So we come.

Annie Schwab: In the, you know, final assembly in the US. Everybody's for that, right?

Roger Harris: Yeah. Great. How hard could this be? And you send it out and then, you know, we all focus on how do I know it's [00:44:30] final Assembly was in the US. And I give the IRS credit. You know, they give us Vin numbers and some other things to look at. And we think, great, this is simple. And then you read an article like that and you go, yeah, that happens every day. Congress didn't think about it. The IRS obviously did because they said no.

Annie Schwab: Yeah. But now the Communication and the. The tools used to make it even reasonable for the average [00:45:00] car dealership is missing.

Roger Harris: Yeah. So so it makes you wonder, are there anything else that we're just not thinking about? You know, now and see, the IRS supposedly had issued some guidance that the car dealers saw. I don't remember seeing any of that. Do you?

Annie Schwab: No, but I also I mean, that's not an industry that normally would, you know, catch my eye. Um.

Roger Harris: Maybe I just missed it when, you know, you see guidance on the car loan interest issued and I figured, well, how hard [00:45:30] I think I fell into the trap. This is too simple. What do I need to read.

Annie Schwab: To get your interest statement?

Roger Harris: Yeah, I'm.

Annie Schwab: Fine.

Roger Harris: But maybe somewhere in there it mentioned all these these points, and I just happened to read it in some sort of tax daily update. That said, the car dealers associations were all fighting this and it's just like, wow, I didn't even think about that. So now when you see that statement, I don't think as a preparer we're obligated to because first of all, who are we going to ask?

Annie Schwab: Yeah, I don't, especially this first year. Now, if [00:46:00] there's some way to go track this down or now they're going to require the, the lenders to create, you know, a statement that goes with the, you know, so that, you know, fine, this year I wouldn't, I'd take the number and run.

Roger Harris: And I don't know how, particularly when you're into little things like, I mean, I can't imagine the negative equity is going to be a lot of money because you're not going to make you can't afford the payment if you still owe $50,000 more on your car than it's worth. [00:46:30] And they add it to the car you're buying. So it's almost and I think that's what the car is. There's got to be some de minimis amounts that this just doesn't.

Annie Schwab: That would make sense.

Roger Harris: You know that again, I mean, what's a contract for wheels and tires cost a few hundred dollars or something. I mean, I don't know.

Annie Schwab: Yeah. Yeah.

Roger Harris: So, so again, it's just another example of where what seems simple, both when Congress is passing it and it first comes out, can have all kinds of little hidden complications. [00:47:00]

Annie Schwab: I'm just going to say it because we haven't used the word yet on this particular podcast, but kind of reminds me of the way that the IRC went down.

Roger Harris: Yeah, you couldn't go a day without it. I know you had to bring it up and there's. Yeah. And that's, it's still out there that in different ways. We're actually going to have some guests that talk about, you know, people fighting that didn't get their credits and penalties and interests that were assessed and all that sort of thing, and you can't get the money anymore, thank God. But there's still some [00:47:30] hangover effects of that.

Annie Schwab: Yep. And who knows, I would I would love a idea of how much fraud in dollars, um, actually occurred and what was recovered versus, you know.

Roger Harris: Yeah. I wonder if we'll ever hear the number because it's going to be staggering.

Annie Schwab: It's going to be huge.

Roger Harris: Yeah. And some of it was preventable. I have heard the IRS say we messed up because practitioners in general [00:48:00] were telling everybody, this has got problems and there's some simple fixes. And they didn't listen until it was too late. And, um.

Annie Schwab: I think there were a lot of people that, you know, there are a lot of mistakes made. And I don't think it was one particular group of people who really, you know, is responsible. I mean.

Roger Harris: No, everybody's got some blame in it. You know, I can make an argument that everybody that touched it had some fault in the fraud, but we'll never know the final [00:48:30] dollars, I don't think because I don't know that, you know, I don't know if you know, you know, when you paid all this money out, I mean, there's some and they are catching some people. Um, there's also a lot of activity in the conservation easement world where the IRS is fighting a lot of those where people are buying a piece of land for 100,000 and saying, but if I put a golf course on it, it'd be worth 10 million. So I'm taking a charitable deduction for the difference. And you know, they're just being greedy.

Annie Schwab: And yeah, I [00:49:00] did read a couple articles related to that as well. Um for sure. And I also was talking about the, the mistakes that, that have been made. I also read an article about how much money went out for the recovery rebate credit in error. You know, that was another COVID get some money out fast, quick help people. And there was apparently more fraud than anticipated as as it relates to those.

Roger Harris: So yeah, there's all, you know, there's things that we just don't [00:49:30] think about. I mean, again, I think we're going to cover this on our future podcast. You know, the whole idea of tariffs, which we all think, well, it didn't affect me. I mean, maybe my milk costs more or maybe this costs more.

Annie Schwab: Gas.

Roger Harris: But some of our clients that are buying goods and services that have tariffs built in.

Annie Schwab: Mhm.

Roger Harris: And now the Supreme Court has said the way those tariffs were imposed is illegal. Well, what happens to the money that's already been [00:50:00] collected and how are people going. And there are people Fedex is one of them. Big company is suing the federal government for their money back. And they have promised if they get it, they'll give it back to their customers. Well, how are you going to do all that? I mean, what's the calculation? And, um, how does a small business owner get into that if that's the case? Now the courts didn't say you have to give the money back. They just said to use the authority used to charge tariffs wasn't legal. So okay, great. [00:50:30] So they stopped going forward. But what about all these billions of dollars that was collected before?

Annie Schwab: I'm sure there's some formula calculation that can be applied across the board. Um, you know, that's above my pay grade, but.

Roger Harris: Fedex came up with something pretty quick because I mean, it was like within a week of after the ruling, they they sued the federal government for some amount of money. So, you know, that may be something we'll have to deal with at some point. And then how do you report that if they get it? And is it taxable? I mean, who knows. Yeah, I don't know. [00:51:00]

Annie Schwab: But I will. The one thing we know for sure is that the tax law is not getting any easier. It is only getting more complex. So our jobs are safe. I mean, I have great job security apparently. Um so we'll we'll see. Um.

Roger Harris: Well, let me give you one little scary thought on that one. Something else I read this morning. Uh, oh, I shouldn't I shouldn't have read it because it's Friday. I didn't need to hear this. Commissioner Wurfel who? You know.

Annie Schwab: Oh, I love him.

Roger Harris: He, uh, has become a spokesman. I don't know the company's [00:51:30] name, but they are coming up with a tax free way to file. I mean, not tax free. Uh, no fee for a tax return. Ai service that will cover all tax returns. And so one person said, well, how do you make money off of this if you don't charge for it? And they said, we're not going to charge for the tax prep. We're going to use it to market insurance [00:52:00] and investments and we'll make our money there. So.

Annie Schwab: Oh taking taxpayer information and right.

Roger Harris: So they're talking about using the tax preparation as a loss leader and offering a free you know, not direct file's gone and interesting idea. You know, I expected to say this will work for 50 people who have two w-2s and nothing else. Right. They said, right now you can handle k1's, multiple states. All this sort of stuff. And they anticipate [00:52:30] at some point in the future being able to handle all tax returns. And so you will have some player in there backed by some private equity dollars, um, that will be offering free tax prep on any Complicated return. Now again, the article makes it sound like anybody could do it. It's going to. You're still going to have to know something. Yeah, but but there goes our job security on a Friday afternoon. I have to come in.

Annie Schwab: Well, thanks, Roger. Yeah, I guess I may as well just, you know, go home now.

Roger Harris: Professional podcasters. [00:53:00] We'll see. This will be all we're doing is podcast.

Annie Schwab: We do have some good topics coming up. I will say, I know, you know, this is a busy time of year. Um, you know, taking an hour out of your day seems like a lot right now, but, um, but we do have some, some good topics, some good, um, guest speakers coming. Um, so, you know, if you're listening, please continue to listen. We'll try to bring you, you know, some, some updates, some good information, um, kind of keep you in the know during tax season when you don't have time to do too much more. [00:53:30]

Roger Harris: So hang in there. It's, you know, according to the CEO, we're 40% through. So.

Annie Schwab: Yeah. And you lose an hour of sleep this weekend. Really?

Roger Harris: That's right. Yeah. This weekend I got to lose an hour of sleep, so I don't know. Is that eat into the 40%? That eats into my sleep? I know that.

Annie Schwab: Well, that's all I had for today.

Roger Harris: Thank you. Annie. Always again. I hope you can find this again. We're trying to keep things kind of light and move around here because you ain't got time to listen to us anyhow, [00:54:00] so. But if you are listening, tell others. You know. Tell them to come join us. We'll try to keep this informative and informational and entertaining at the same time. And Annie, as always, I appreciate all you do and your perspective on everything. And we thank you guys for listening and hope that you'll continue to listen and tell other friends about the federal Tax Update podcast. And I guess, Annie, until next time, we'll sign out. Goodbye, everybody.