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Roger Harris: Hello everyone. It's another federal Tax update podcast. This is Roger Harris along with Annie Schwab. As always. It's a pleasure to be back with you guys. Annie it's always good to see you. How are you doing?

Annie Schwab: I'm doing pretty good. Rolling into the end of July here and start a school for my kiddos. So I'm not going to lie. I'm kind of ready. I'm ready for them to be back in school. But, [00:00:30] um, the summer's been great. I know you've been doing a lot of traveling this summer.

Roger Harris: Yes. I came to the office yesterday and said, can somebody please tell me what town I'm in and what day it is? Uh, I have been to an IRS tax forum, the Natp tax posium, the NAEA tax summit, and squeezed a trip to DC. Uh, in between that, uh, it's good to get out and to, you know, to be amongst the people in our industry that aren't just, you know, our pageant people and in our company. [00:01:00] Yeah, to hear that. It takes a little effort to do it, but it's great. And I tell you what was particularly and I think I've shared this with you, but if not, I'll do it now. It's always rewarding when you go to these conferences and people come up and say, oh, I listened to your podcast, you know, that sort of thing. So any there are people listening.

Annie Schwab: Okay, well, I'm glad to hear it because it takes a lot of work to do these things.

Roger Harris: Yeah. I've actually met a few of them and they, and they particularly want to know where you are. I think they, they're disappointed [00:01:30] that I'm the only one they can talk to.

Annie Schwab: But yeah. Well, we are planning on attending um, New Orleans coming up. Uh, we've got others. So if you are at the forums, come find us. We have a presence at all of them. Um, we'd love to meet you.

Roger Harris: Yeah, come by and say hello and give us some suggestions if you have any. And yeah. And again, if you're, if you haven't been to a forum and you're thinking about it, you know, there's some great sessions going on there, great instructors. Probably the one thing that separates the IRS forum is from just the other [00:02:00] conferences. Is the ability to go to the IRS case resolution room and actually think real life cases and get some help with them, as well as access to the taxpayer advocates group. So they're worth going to, you know, it's a good way to kind of spend a summer, but it's just awful hot to me. I haven't they haven't sent me. I haven't been to a cool place yet. So I'm looking for somewhere.

Annie Schwab: Well, those are more expensive.

Roger Harris: Yeah. So maybe one of these days we'll get to somebody where it's cool. But yeah.

Annie Schwab: You get CPE don't wait [00:02:30] for your, you know, your CPE. And then, you know, it's great to network with other people. They always have a full room of vendors, sponsors, you know, tech partners, all, all anything, basically anything you could possibly need, they have in there and you're doing a practice management sort of panel. Um, I know, you know, I've enjoyed going to them. So if you've never been or you're there still, I guess, well, New Orleans is Literally in a couple of days. But then I think there's still [00:03:00] two more or three more.

Roger Harris: There's after New Orleans, there's New York, Orlando and San Diego. Um, they're close to selling out, but I imagine you can still find a way to get in. You might not be able to stay at the actual hotel where the event is. You might have to walk across the street or something. But no, if you if you're still looking for some CPE there, they're affordable in the associations. Again, I'm sure there's other events they have, but those are particularly interesting. I got to hear Cooper Manning at one and Aaron Collins [00:03:30] at one. So I mean, uh, the associations do a really good job as well, but they're different than the IRS forums.

Annie Schwab: Um, yeah. Yeah.

Roger Harris: And, but they're all good. Um, you know, except for the travel, it's just great to, to go, you know, be with your peers and, and it's good to run into the industry outside of your normal network and find out what's similar, what's different.

Annie Schwab: Yeah.

Roger Harris: What you're doing right or wrong and vice versa. So it's good to get out and network with people. I just wish it wasn't 100 [00:04:00] degrees while we're doing it. But you know, I've survived so far.

Annie Schwab: Exactly. Well, we are here today sort of like a mid-year, um tax roundup. We're going to talk about a few new things, maybe um, some stats, some stuff to look forward to for fall things you can be doing now. Um, we'll also, um, kind of talk about a few things that will affect the 2026 tax returns as you're meeting with clients [00:04:30] and getting those extensions returns done. Um, but, but yeah, Roger, let's just kind of revisit where the IRS sort of stands and what we're, we're seeing, you know, I would say the majority of people felt that the spring busy season was a success. Um, there were, you know, lots of returns, lots of, you know, it started on the 26th of January. Returns got processed, you know, if you, if you just had a plain old return and you had a refund with direct deposit. I mean, you [00:05:00] know, that seemed pretty smooth. Um, there were some obviously some hiccups. Uh, and so we were sort of, you and I were chatting about this just yesterday about the telephone service. Um, you know, there were 48 million calls that came in, um, but only 9.9 million or something around that number were answered. And unfortunately, I'm not surprised given the, the turnover and the staffing, but [00:05:30] is it going to get better? Like what's what are you hearing?

Roger Harris: Well, I mean, the, you know, first of all, during the filing season, and I think we've probably said this on the podcast before, if you want to judge everything just on the filing season, it went pretty smoothly. I mean, nothing's perfect, but it went pretty smoothly. But the one of the things that the service has historically done and did again this year is they shift resources to the the phones and everything that's happening during that April 15th. So while they're moving [00:06:00] people over there work that they would be doing somewhere else, you know, is not getting done. So as soon as they get past the April 15th, they put them back to where they came from, which means they get to go work on what's gotten behind. But now the phone service will, will decline. So it's, it's a challenge of, of resources, both digital and human. That's why when you talk to the IRS people, one of the one of the ways they judge a lot of their priorities of how they're doing things and, [00:06:30] and we'll talk about some of them as we go through is, can we do something digitally that eliminates a phone call?

Annie Schwab: Mhm.

Roger Harris: Because that's just there's so many of them that you just cannot get around to, to ever doing it probably at the level that we would want to. So as you look at their digital strategy going forward, a lot of it is designed around stopping the phone calls and allowing self-service options. You know, online accounts are a great example of that. [00:07:00] And we'll talk about those is allowing you to do a lot of things in your online account. So you don't have to pick up the phone and call.

Annie Schwab: I think they, they tried there was like they had voice bots this year. And so the volume of calls to the voice bots definitely increased. But, you know, I think it's like 17% of the calls, um, were, were answered or completed. And most of those were transferred to a live assistance or disconnecting. So I mean, that's not a great stat, but let's [00:07:30] just hope that that was, you know, first year rollout of a pilot kind of program and that they'll get, you know, because that could be super helpful if the voice bots can actually assist with the call volume. Um, so fingers crossed on that. I didn't use the voice bots. I didn't.

Roger Harris: You know, I really haven't either. I think the other thing that's kind of interesting, again, I'm reflecting back to some of the things I heard when I was in D.C. is when you pull people away from that work. What does that do? That makes people call to know what's happening to [00:08:00] their claim or whatever. So they've got to get caught up, and they've got to be quicker at processing normal things. Because while you may send the form in electronically or send it through your online account, Human nature says, if I don't get a response quickly, I'm going to pick up the phone and I'm going to keep calling until I get an answer. So it's kind of this vicious circle of you got to go solve this problem. Well, let's solve this problem.

Annie Schwab: Online accounts can really assist with that because you can track sort [00:08:30] of status and see the notices and, you know, that kind of thing. Um, you know, it's, it's a hard place for the IRS to be in. Um, I will say, you know, most people felt that this tax season went, went well. Um, I did read something about the, the tax assistance service centers. Um, there was like over a hundred of them last year or the year before. And like, we're down to 42 or something. Um, and then they sort of, you know, evaluated those 42. [00:09:00] And unfortunately, the accuracy rate of the, of what was being provided was, was really low. Like I think it was like 10% or something. So I mean, there's definitely areas that need improvement. I, I'm, I mean, I know the service knows this. Oh yeah. But it's just sort of, how are they, how are they going to get the funding? How are they going to get money to do anything about it? Um, yeah. And identity theft that's been on the rise. It's, [00:09:30] it's always probably going to be on the rise because they're smarter than we are. Um, but the, the sad part about it is that of the cases, I don't know, more than half of a million cases were pending. And the resolution time is just being extended and extended and extended. So they're like 20 months, you know, or, or some ridiculous amount of time before it gets resolved. So that's frustrating. Um, but again.

Roger Harris: Yeah, it's almost like one step forward, two steps back that every time you do something. [00:10:00] Because let me tell you this, they are trying their best. They don't, you know. Oh, sure. They understand what they're doing wrong and what they need to do better. But, you know, sometimes, and it's, I don't know if it's human resources or digital assets, you know, it's we tend to judge it based on people. But it's not just people. There's, there's also their technology still lags and needs to be improved. Um, because, but they did lose a lot of really experienced people, a lot of people. And anytime you're bringing in new people, [00:10:30] the training just takes a while that somebody who just walks in the door six months ago is not going to be near as good at their job in working for us or working for the IRS as they will be after they've been there a couple of years. So we're also dealing with fewer people, and a lot of those people are still in their early stages. So, I mean, I don't think it's going to get dramatically better overnight. But I do know that they are working at it and they're putting a lot of effort into that whole digital, uh, approach to it, because I don't [00:11:00] think they expect to ever be able to just hire whoever they want and, and have people. So we're going to be working more in a digital environment. And that's probably the way the world's going.

Annie Schwab: Yep. That's where it's going. Yeah. What else do you got? Roger.

Roger Harris: One other thing. This is sort of related to it, but it's not it's something that, uh, a lot of you people may know who Ken Keyes is. Uh, he's been the, uh, acting chief counsel, and then he's the assistant secretary of Treasury [00:11:30] for tax policy. Very smart man. Very well clicked in. Um, he's leaving both of those jobs. Now, there's debate in the media as to whether he's being forced out or whether he's doing it voluntarily. The The theory of him being forced out as he was asked to do something that he knew, or he said he knew he could not do. And when he did not do it, they told him he needed to leave. Regardless, it's another [00:12:00] example of someone who's really, really good at what they do and really smart, and the service and treasury are going to lose Ken, and it's going to be tough to replace. Yeah. And, uh, again, another example of a lot of smart people that, uh, are no longer working in the tax community. And yeah, that's going to, it's going to have ramifications. No way around it.

Annie Schwab: Yeah. Well, let's hope they find somebody that can [00:12:30] fill his shoes. That's all. I guess we can hope for.

Roger Harris: At least.

Annie Schwab: A couple of other reminders. Um, so as you know, the 2025 filing, obviously we still have a lot of returns to, to get out, but I just wanted to kind of remind everyone as they're there talking to their small business clients. Um, the no tax on tips and no tax on overtime. Remember we had this sort of like get out of jail free card. There wasn't they weren't going to assess a penalty. Um, for the reporting. They sort of said any reasonable [00:13:00] method used to determine um, the, the amount of tax, the amount of tips or overtime. Well for 2026 that's, that's out the door. There's, there's no more of this like get out of jail free card. And I'm sure there are lots of small businesses that are working with their, their payroll companies or their tax, um, preparers. But just as a reminder, you do need to be reporting and tracking employee tips and overtime. Um, I haven't seen any [00:13:30] new necessarily FAQs or anything coming out. You know, we still have those 68, um, categories that apply. Uh, I would think that the payroll companies are also.

Roger Harris: Oh yeah, they're working on it.

Annie Schwab: Working through this, but just, you know, if, if you're doing financials or you're doing, you know, talking with some of your business clients, just, you know, remind them, um, and make sure that they have some method of tracking just going to come back to bite them [00:14:00] at the end of the year if they haven't. Um, and then there's penalties associated going forward.

Roger Harris: So yeah, it's kind of last year, the burden was kind of on the tax preparer to figure out what the deduction was, how much the tips were, how much the overtime was. Now that burden is going to shift to the small business owner and the payroll companies to, to provide that information. So it's going to be good for tax preparers. It's going to be bad for small business, and that they'll have to bear the burden or cost of whatever it is to, to report this information, but it'll make tax season take a lot of the questions [00:14:30] out of, you know, where did this number come from? Or how do we calculate it? We'll have that number. But that's good. There's winners and losers all the time.

Annie Schwab: That is true. That is true. And I know, you know, we we feel like we get through busy season and we've got returns on extension and we're working for for our fall. Um, but now is about the time, maybe the last couple of weeks or so that the, the notices start coming. Right. Um, now we've heard all about the, you know, no more paper checks, [00:15:00] the lacking direct deposit type of notice. And that was the CPE 53. And we've talked about that on previous podcasts. Um, you know, that was annoying. There was confusion. The QR codes kind of threw people on the notice. They, you know, they were kind of wondering, is this legit or not? Um, you know, asking taxpayers to log in to the online accounts to provide the banking information, just delayed refunds. And, and I think you and I have agreed before, like this idea, [00:15:30] this, this, you know, rollout of no more paper checks after September 30th of 25. Great idea. Probably the direction it needs to go. Um, the rollout, you know, the implementation could have used a little bit more time.

Roger Harris: Yeah, I needed more time to think through it. And and I think we'll see improvements in this. I think the service recognizes that there are some things they can do to make it a little simpler, because in some cases, this put people that needed the money, you know, behind [00:16:00] the eight ball waiting for it. Yeah.

Annie Schwab: Six weeks, eight weeks after the notice before, you know, the paper.

Roger Harris: Check, I think it will get better. But the idea of sending out paper checks is, you know, going away. Yeah, yeah. And, um, so we'll have to figure it out and they will, it'll, it'll get better. And the software companies, I think, have the opportunity to help here and at least identifying unbanked people who don't have it. So we'll see. But those notices are irritating. I think I mentioned on the last podcast, there was a bet out there of a free lunch. [00:16:30] If somebody a free dinner, if somebody could come up with a certain case, well, nobody's come up with one yet. So, um, okay, so I think the service knows the problem. They know what caused it and they're working on it and they haven't had to by any practitioner or tax preparer or free dinner yet for proving them wrong. So we'll see.

Annie Schwab: Right, right, right. Well, that's, you know, that those notices were coming out pretty, pretty quick. But, um, I read somewhere like the most often received type of IRS notice. [00:17:00] Um, and I'm sure none of the listeners are surprised at some of these, but you know, that CPE 2000 has been around forever. That, that one, you hear the for me at least I hear CPE 2000. I'm like, oh, I know exactly what that is. You know, that's, that's the matching one where they're comparing w-2s or brokerage forms or, you know, information returns that have been submitted. Um, so that that is a common one. I, there are no changes with the notice, you know, responding to the notice hasn't, you know, [00:17:30] suggested ways of responding hasn't necessarily changed. Um, but the CPE oh five that one's gotten a little bit more popular. And that's the one where basically they're saying, hey, we're going to freeze your return. We're going to hold this and take additional like a deeper dive, a refund review. Maybe it needs additional verification from, from someone. And those can be frustrating, obviously, because if you need the money, um, but I think those are coming out of some of the, you know, additional [00:18:00] child tax credits, um, ones that, you know, considering identity theft for some reason. Um, like, I think it's more of a security thing that they're putting these certain, um, returns on hold. Um, but, but the number of CPO fives, um, that have gone out as increased. So.

Roger Harris: And you mentioned it's frustrating because it can return, can meet some standard or hit something where it looks like identity theft could be part [00:18:30] of it and you're just caught in a trap because it you. Yeah. And there's nothing you can really do about it. And it can take a long time sometimes. And it's, it's another kind of consequences of all the data breaches and the identity theft that's going on out there, is that your return may be perfectly accurate and legitimate, but because of certain factors that you don't know about and couldn't do anything about them, if you did, you get hung up.

Annie Schwab: Mhm. And yeah.

Roger Harris: Sometimes it can take a long time.

Annie Schwab: And the practitioners [00:19:00] are frustrated too, because the clients are calling, well, what did you do wrong? You know, the clients are like, uh, I've never had this happen before. What did you know? What did you do? What was different? You know, why is this happening? And, and, and there's really nothing that you can do to expedite it or to, or to resolve it. So. Um, and then the CPE 14 that's the balance due notice. And some of those are related to the notice goes out before the money gets processed or there were credits that had been applied or, [00:19:30] um, estimated tax payments that were either applied to the wrong quarter or something like that. Uh, those, those are also frustrating. I do think the online accounts are assisting with responding to those. I think there's, you know, those online accounts show records of payments and that kind of thing. Um, but that was also in, you know, the top five most, most sent out IRS notices. So hopefully you're not dealing, you know, with, with multiple cases [00:20:00] of this and, you know, your clients all are okay. But, um, if you need, I do, I will say the IRS website does kind of explain and not just these that we mentioned, but all the different notices, what they mean, um, you know, how to respond. Um, and these have been around for a long time. So the verbiage and the notices have not have not necessarily changed. Um, but just wanted to.

Roger Harris: And those misapplied payments are part of the problem of the backlog of work where the [00:20:30] payments sitting there just haven't been processed or posted yet. So the notice goes out, you know, you've sent the money, Probably the IRS knows you've sent the money. But again, that's where this moving back and forth of people to go answer the phone and not process payments or whatever, those sorts of things where they just kind of multiply the problems. So a lot of those aren't really necessary. Aren't really you didn't pay it. We just haven't processed it yet.

Annie Schwab: Yeah. Again, [00:21:00] frustration, confusion, you know, those kinds of things. Um, let's see, we have some new updates on a couple of things. Um, that we did get some new guidance as it relates to the Trump accounts. Remember those were in a pilot program for 2025. Um, it was new for the reporting of 2025. Uh, it was the, you know, savings account designed for, for the kids, um, under 18. But if your child was born between 2025 and 2028, you got it. [00:21:30] This seed money of $1,000 from the Treasury. And I think during tax season, like there was a way to fill out the 4547, and then there was a way to do it online. But it was it was a little confusing. You know, it was something new. Probably hadn't been promoted enough, I don't know. Um, there was a lot of interim guidance rather than final regs. And the rollout was kind of inconsistent with communication. Long story short, we've seen some improvements here. Um [00:22:00] they have said that for 2026 on the 1099 R they're going to be some new codes. So hopefully the reporting of the Trump accounts will be easier for tax practitioners to actually handle. There's like a, I don't know, seven C and seven D or something.

Annie Schwab: Um, and then there was concern by the public about, you know, what happens if grandma puts in money into their, their child's fund. Um, so, you know, would that be [00:22:30] related to is that gift tax? How do we treat it? What about the interest that's earned on it? Is that also considered? The IRS did come out and say, you know, there's going to be a safe harbor here. They're not subject to your own gift tax reporting requirements. Um, so that was a relief for, for some, uh, there were a couple other things they kind of noted. So when the money goes in, there's like a default investment, uh, a low cost index fund kind of thing. Uh, but then obviously you can go in and, [00:23:00] and alter how you want that money invested, but at least that was addressed sort of for, for the initial setup. And now you can, I mean, if you've got Google Play, apparently you can get on and set up a Trump account and make changes. Same with like an Apple Store. There's the Trump website, Trump account website. So I, I think we're moving in the right direction with.

Roger Harris: A lot of resources being put into this and a lot of people matching the thousand dollars you put in a lot of companies [00:23:30] and things like that. So, you know, we'll see how it goes. I think I'm right in saying that it expires in three years, so hopefully it'll be successful enough because I'd hate to see who knows what they'll do with it.

Annie Schwab: Yeah, I don't know what would happen.

Roger Harris: Extend the law or whatever. But no, I think it's it's getting better and solving that, at least for most people, solving the gift tax question, that seemed to be the biggest lingering question. And they've issued some safe harbor language that I think deals with most people.

Annie Schwab: Yeah, yeah. So [00:24:00] that we did have some updates on, I will say we don't necessarily have. So the Kwong case, we've we've discussed that before. That's that was the idea that, um, during the Covid period that any interest and penalties assessed from like January 20th of 2020 through July 10th of 2023, um, those could be, you could request an abatement or refund of those claims. And it had that crazy deadline of July 10th, which has come and [00:24:30] gone right as being able to do it. And between, you know, just maybe not just before, but a little before July 10th, the IRS did appeal it and it sort of just sitting out there. I mean, I haven't seen much Roger, have you?

Roger Harris: No, I think we're waiting on appeal. The only thing I know is that we've evidently there's been millions of applications or filings for this. So again, there's another pot of work that depending on how the courts rule, [00:25:00] may have to be processed. Um, no, we're I think the main thing we're doing right now is we're waiting on the court, uh, to see what, uh, what ultimately happens. We have seen the only thing I think, and I think you pointed it out, Andy, so I'll defer to you after I mention it. We have seen a couple of rejections where the 843 was just not filled out properly. Right. So they were just kicked back. And my knowledge they can't be resubmitted. So I mean, you just [00:25:30] so I hope everybody.

Annie Schwab: I mean, I guess unless you did a protective claim I.

Roger Harris: Claim or something like that. But in terms of if you were asking for an amount of money, you know, and you didn't fill the form out, right. So hopefully everybody was careful filling out. It's going to be interesting to see once the court rules, obviously, if they throw it out and then it's like it never happened. But if they uphold the earlier court ruling, I got a lot of 843 to process.

Annie Schwab: Yes, yes. Um, yes. [00:26:00] So I haven't heard of a lot from our, from our network of successful ones. Uh, we, I did see a rejection, but it didn't, I mean, the form was not completed correctly. So I mean, the IRS is not going to award, you know, an abatement of penalty and interest if you haven't completed the form correctly. So, um, the time, I mean, the deadline is over. So if you haven't done it, there's not really an opportunity at this point to, to do it.

Roger Harris: Um, certainly can't ask for a refund. You might can still [00:26:30] get some abatements, but you can't get a refund.

Annie Schwab: Yeah, yeah, I guess so. Um, well, it is what it is.

Roger Harris: It is what it is.

Annie Schwab: We'll continue to bring anything new on the case to you. Uh, but that's all I've.

Roger Harris: I think we're waiting on the courts. I don't think you're going to hear much about it now until.

Annie Schwab: Yeah, the IRS is pretty quiet about it this whole time.

Roger Harris: Yeah. Well, I got, I got enough issues. Yeah.

Annie Schwab: So I agree. Okay. Let's see.

Roger Harris: What do you want to do next? [00:27:00]

Annie Schwab: Let's talk about, um, just some tips maybe for getting through the fall busy season. I know our, our network, um, you know, extensions seem to be either about the same as the prior year or maybe a little bit more on extension. And that could be from, you know, a number of reasons clients didn't get you the data or, um, k1's or amended brokerage statements or revised brokerage statements come out. Whatever the case, it's sort of like, okay, [00:27:30] we're sitting here at the end of July. We've got the September 15th deadline looming. We've got October 15th deadline looming. And I feel like after October 15th, it's like year end planning and then you're smack right into it. So I don't know about you, but I don't actually feel like we ever get a great break here. Um, so maybe we can talk about some tips to kind of help you get what you need in order to get what you need to get done during fall busy season.

Roger Harris: Yeah. Because I think [00:28:00] tax season now is like the whole year. We just have different deadlines and the percentages of, of returns that are done, which I guess maybe it used to be that a higher percentage of returns were done by April 15th. Now more are extended out to September, October deadlines, whatever the case may be. So we're never really out of tax season. But at some point we do have to start figuring out how to finish one and get ready for the next one. Um, you know, from [00:28:30] just going to these conferences and getting educated and learning what's new. I mean, yeah, you got to be finishing one year and go figuring out what's going to happen next year. I don't don't think we're going to have any major tax legislation, but who knows.

Annie Schwab: Yeah. Well, if you've if you've got, you know, if you've got a client base and you've got a client list, um, I would, I strongly recommend, you know, figuring out, printing out, downloading whatever an extension client list and set some realistic deadlines, um, [00:29:00] for the client, getting you the information if, if they're the ones holding it up, if you've got it and you're just, you know, not getting to it, you know, now is probably the time to revisit capacity and staffing. Um, and maybe, you know, maybe you charged for the extension, maybe you didn't. Um, maybe these returns are more complex than they were in the prior year. Um, and so maybe you do need to look at pricing again for, for complexity and all the new legislation that applied to 2025. [00:29:30] But, you know, getting organized internally will help that. Um, I think will help that. Um, and there's, I don't, so in our particular software, we have, um, sort of like a missing item automatically generated email so you can mark stuff and it creates an email that you can send and be like, we're still waiting on all of this.

Annie Schwab: Um, whatever method to the madness, I guess that you can use with your software or whatnot. I think sending something [00:30:00] in writing with outstanding items where you're state stamping it kind of, um, and then providing a, okay, we're sending you this reminder and we need it by X kind of, you know, helps move things along. Um, and then also, especially if you have clients and it's just the K one, like you're just waiting on the K one, maybe it's not a k one that you provide or you do, um, you know, get flagged those clients and start being like, hey, find out when that k ones coming. Still [00:30:30] need that K one. Um, reminders here. I mean, I, I get it, it's summertime. Kids are off of school, college kids are home, people are taking vacation. But at the end of the day, you still got to meet the October deadline. Um, and so whatever you can do to kind of move that ball forward, I think is going to be helpful as you approach those deadlines.

Roger Harris: I think the biggest thing is if you just sit back and wait, it's going to be October before you get it to try to be proactive, you know, reminding people and pushing people [00:31:00] to. So you kind of spread the work out between now and October 15th. You don't just have another crunch like you did on April 15th. Well, you know, you're going to have some level of of pressure right before October 15th, but try to work on that while at the same time, you know, looking back, working with your staff to see what could you improve in your systems and your, uh, softwares, you know, are they the right softwares? Are you or your clients adopting technology like they should, you know? Or are you still dealing with too much [00:31:30] paper? You know, a lot of things while it's fresh on your mind and start maybe incrementally implementing some of those changes during the extension season to, to start kind of testing new processes and new procedures. While the volume is not so great like it is during tax season, because like I said, I think it's turning into a year round job for the most part. Um, so the, that we can automate it or maybe even eliminate some of the steps in the process. [00:32:00] You know, something as simple as how's your organizer work? Is people using it? If not, is there a better way to, to gather information and are people sending you documents or are they sending you uploaded information? You know, just.

Annie Schwab: Yeah, yeah.

Roger Harris: Anything you can do to make a filing season easier, you should, you should take advantage of advantage.

Annie Schwab: Yeah. And don't be surprised if you get some new clients. Um, I read an article just recently about, you know, there were a lot of people who prepare their own returns. And then [00:32:30] with all the new legislation that came out, you know, perhaps they were, you know, got into it and they're like, well, I'm just going to file an extension. I need to look into this more. I'm not sure I'm doing it right. And then there's probably, um, taxpayers out there that have extended and are like, I'm just, I need to get somebody to do this for me. So you may get, this may be an opportunity to, to get a couple of clients, um, that, you know, went on extension and changed their mind about doing it themselves or maybe unhappy with their previous prepare. Who knows? Um, [00:33:00] but it wouldn't be, it wouldn't be shocking if, if, you know, clients that were out there looking to find a tax preparer. So, um, and also just one other thing, this is also a great time. I don't know if you have like a mid-year check in or if you're sending out articles or emails sort of being like, hey, we're halfway, you know, we're halfway through the year. Um, please, You know, let me know if you've had some life changes. Uh, you know, kids married, divorced, move jobs, locations, [00:33:30] um, you know, especially if you're doing estimates, you know, sending quarterly estimates, you know, do we need to revisit those? Um, do we need to look at, you know, completing a new W-4? Um, it's another opportunity to touch the clients and be part of their advisory team. Um, so take advantage of, you know, some sort of communication, uh, that you can send out to your clients just saying, hey, I'm here, you know, we're halfway through the year. How are things looking? Anything you got to tell me? Anything new?

Roger Harris: Yeah. [00:34:00] And I think that's really important as we start moving into a new AI world.

Annie Schwab: Oh yeah.

Roger Harris: It's going to be things like that that are going to keep customers coming to us. Because I think the preparation part of what we do is going to become, I don't know how quickly, but it's going to become automated for the most part, and it's going to be those extra things and extra touches that we have that are going to be why some of our clients keep us. Some will always come to us because they want even if [00:34:30] they just push a button in their tax return popped out, they wouldn't do it. They still want a human involved. But more and more of our customers as we go forward in AI gets more and more ingrained in how we do the work and options for the individuals become more prevalent. It's going to be those communications throughout the year, those planning opportunities, those things like that, that are going to be really why a lot of our customers are going to stick with us as opposed to just, you know, letting it be done by AI. So yeah, start [00:35:00] now, get ahead of the curve, you know, develop those relationships and those benefits so that, you know, when it looks easier to do a tax return, they go, yeah, but I'll give up this. I won't get to talk to Annie. I won't get this. I won't get that, you know.

Annie Schwab: So yeah.

Roger Harris: Never too early to get started.

Annie Schwab: I like it. All right. Roger, what's what's up next?

Roger Harris: Uh, let's talk a little bit about, which I think is basically a good thing, but a couple little hurdles. First, there's a penalty, the first time penalty abatement [00:35:30] that has come out. Oh yeah. Which I think is really, um, for the majority of people a great thing. So anyway, why don't you go through the basics of how it's going to work and then we'll talk about because I was just got a briefing on it when I was in DC and about where the, the, the downside to the extent there is one exists.

Annie Schwab: Yeah, sure. So first time abatement, um, that, you know, based on reasonable cause, blah, blah, blah has been around for a long time. Um, it's, it's being replaced, [00:36:00] but it's in a similar fashion. So there's now this automatic exemption from penalty. They're calling it the AEP. Um, and basically it provides relief for taxpayers who have a history of paying and filing on time. You usually have to have that, you know, a three year period, of filing on time and paying on time. But instead of like applying for a first time abatement, this is something that's going to be done on the back end. It's more automatic. So it'll apply [00:36:30] to originally filed returns. They're saying individual returns for tax year 2025 and then 26 for quarterly tax returns. And it's not going to be fully implemented on all the forms until more like they're saying the start of 2027. But what it does is that the Who, if the taxpayer qualifies, then the penalties are not even being assessed, um, during the processing of the failure to file. So, you know, you, you, I don't know, you had a late [00:37:00] this or you didn't send your money in time. Now on the back end, they're removing the associated penalties. If you have a, you know, a good standing record, which is essentially like a three year period. Um, so there's no back and forth. So I like that. I mean, there's no, you know, paper and correspondence going back and forth. So I'm curious to I'm curious to see what what's the downside?

Roger Harris: Well, and there's really not a downside for most people. There's a few. But you know, [00:37:30] the other advantage to what they're doing right now is, is someone pointed out to me that works in the low income community, a lot of people don't even know that of something called a first time penalty abatement even existed.

Annie Schwab: Oh, true.

Roger Harris: So they never asked for it. So they would have never gotten the benefit that now will be applied to them automatically, automatically. So, uh, and as you mentioned, there's no now me writing a letter asking for it or doing, you know, so all that communication just goes away and we're, we're straight into automatic where [00:38:00] there is some pushback and, uh, is that and this has always been true even when you had to ask for it, because a lot of times you would call the IRS and you would try to have a reasonable cause argument and they'd say, well, let's just use your first time penalty abatement. You go, no, no, no, I want to save it.

Annie Schwab: Yeah.

Roger Harris: You know, I have a I have a reasonable cause for this one. I don't want to use my first time penalty abatement when I can keep it by using reasonable cause. So one of the first questions when this automatic [00:38:30] process came in is. So let's say the penalty is assessed, but I have a reasonable cause. Can I go into the system and say, no, no, I don't want it. I want to use reasonable cause? Well, the answer to that is no, it's automatic. There is no reasonable cause ability, at least as we see here today, to save that first time abatement. And the and [00:39:00] you said something that people probably didn't pick up how important it was. But the reason that that's the case is we're not abating a penalty in this case because of reasonable cause or any other reason. We've never assessed it the way they're doing this so the penalty never gets assessed. So you can't get a reasonable cause to remove a penalty that was never assessed. So this first time abatement is going to be automatic.

Annie Schwab: Yep.

Roger Harris: And you got to ride the clock [00:39:30] out three more years. Yeah. You know now you can still do a reasonable cause anytime. But it can't go back to this first one. You know, it's got to be that the next one that came up. Now the question would be how many people really use their first time abatement and then have something else in the next three years that they could have used it. I don't know if that's.

Annie Schwab: Yeah, I don't know.

Roger Harris: I don't know how many, but I mean, it could be. And there's and I'm not smart enough to understand all the examples that I was given, but there were some people in the payroll business [00:40:00] who were concerned that the abatement of the first time penalty and not the reasonable cause exposed, could expose payroll providers to a bigger liability because it didn't even address the underlying cause of the penalty. So by abating the penalty, you've taken the penalty off the table. But the problem still there. Yeah. And how do you go in now and not have some I the [00:40:30] example when it was given to me live made a lot of sense. I just can't repeat it well enough. But there are some other things other than just the fact I lost it and I could kept it. There are some other things I don't know how they're going to resolve that. There's there's there's some back and forth, you know, the service is willing to listen, but I never got a sense of whether it was going to be on listening. But, you know, we had the opportunity when I was in DC to talk about the the issues that [00:41:00] this could potentially cause. I just don't know the bandwidth. They have to come up with something for every possible exception. For most people, this is just great. This just means.

Annie Schwab: Yeah, that was my that was my takeaway. Just just no more processing and correspondence and paper and whatever. Just it's becoming, you know, they're understaffed. We don't we don't need to be doing this. I liked the idea, but I see how there could be this smaller group that maybe, [00:41:30] you know, certain one off concerns.

Roger Harris: Yeah. So I think we have to we have to cheer that this is happening, because my sense is that for 90% or more of the people, this is great. It's going to be that 10% that either think they had reasonable cause and don't want to waste it or the, again, the payroll example, but nothing's perfect. You know, this is an improvement. You know, don't let the enemy of good be perfect. You know, I'm glad we got this out. And [00:42:00] maybe we'll figure out those others, uh, over time and find ways to satisfy what I thought I thought were legitimate concerns. But I'm glad we're not holding up the majority of the people while we figure this out.

Annie Schwab: Okay, yeah I agree, thanks for thanks for sharing that because I hadn't even thought of some of those scenarios. But, you know, I'm sure there'll be more to come. So we will keep you posted as we get anything more on that.

Roger Harris: And I didn't do a very good job explaining it, but hopefully you get the concept.

Annie Schwab: I [00:42:30] think, I think I think we're good. Um, I know, I know we're only got about maybe ten minutes here. Um, I was going to just provide a few kind of provisions that will take effect in 2026. I mean, there was I mean, 0BBBA was huge. Um, a lot. Well, some was retroactive. Um and then some sort of is getting phased in and then other things are getting phased out as we go. So, um, a couple of things just to, to have on your mind [00:43:00] as you are talking to clients or maybe you, you know, for example, there's a new itemized deduction for educator, uncapped itemized deduction for educator expenses. So if you've got a lot of teachers, it's for K to 12. Um, this is going to be on top of the above the line deduction, but it's new. So, um, you know, as long as your teacher, counselor, administrator, I mean, it even covers coaches and, and whatnot, um, that work at least [00:43:30] 900 hours. It's an unlimited uncapped itemized deduction, not a 2%. Like it's just a regular old itemized deduction, um, for 2026. So, you know, if you've got clients that are in this field, maybe something to start talking to them about, um, um, gambling losses. There's been some tweaks here. Uh, Roger was saying we've got some pushback even, but, you know, gambling losses limited to 90%. So, uh, that that is a change. [00:44:00] Uh, I think you said Nevada's.

Roger Harris: The Nevada legislature, the people in Nevada House and Senate are not happy with this. So they're trying to get this changed. So we'll see.

Annie Schwab: Yeah. Um, we've got, you know, maybe those who generally wouldn't itemize can now take up to, I think it's $1,000 for single 2000 married filing joint for charitable contributions. Um, so, you know, if you've got some people who, you know, big givers, even if they're not, um, you know, even if they're not going to itemize something [00:44:30] to talk about and there's a new floor, there's a half a percent AGI floor applied. Um, so two, two little tweaks there, but, um, we've, we've all, we've got the salt cap, it's not going anywhere. It was 40,020, 25. It's going up to 4400. Um, but that, you know, depending on what state you're in that, that could be a conversation that you want to have with some of your clients. We've got a couple of family provisions and then we'll look at a few business [00:45:00] provisions. So a big jump here, the 529 plan from for K through 12 the withdrawals are going up from 10,000 to 20,000. So doubling that's doubling for 2026. Um we've got the dependent care assistance exclusion that's jumping as well. It's was 5025. And it's going to 7500. The child and dependent care credit. There was a max that was limited at 35%. And now it's 50%. Um and there [00:45:30] are some new education requirements for those credits. You just the child now has to have a social security number. So, you know, maybe some of your, you know, family clients, uh, could benefit here. I think this is a step in the right direction. Um, another reason to reach out to them mid-year and say, hey, did you know, you know, we've got some changes coming up that I think might benefit you. Never, never too early to start, um, talking about it. Uh, Roger, [00:46:00] you want to look at the business provisions?

Roger Harris: Yeah. Um, let me find my Notes here. One of the big well, I don't know. It's big. It's you know, she I there's a minimum now I believe it's $400. You know, it's not going to change anybody's life. But it's.

Annie Schwab: It's something and it's permanent. Like it was made permanent and it's staying permanent. Um, so there's no sunset with the 1099 A. But the new 400 minimum is um, is new.

Roger Harris: Yeah. And [00:46:30] they've expanded some bonus depreciation. Um, again, if you have people in the recording business, particularly, that's in some clean energy provisions that are, that are coming up. Um, and then um, terrible. I mean, corporate donations, uh, new floor on those. I mean, not a lot of dramatic stuff there. Yeah. But you know, it when I say not dramatic, it depends on who the client is.

Annie Schwab: Yeah. That's true.

Roger Harris: Some of this may be insignificant to you and me, but it might [00:47:00] be really important.

Annie Schwab: Yeah, yeah. And there's some not changes on the well. Some changes on the the W-2 obviously for tip and overtime. We've got new codes, reporting requirements. Yeah. We've mentioned you know, I think it's box 12. Now. There's going to be new codes for this. And we mentioned earlier in the podcast, you know that get out of jail free card is gone. Um, so they'll, they'll have some, some differences there. The threshold for the 1099. It's been stuck.

Roger Harris: Oh that's right.

Annie Schwab: For [00:47:30] years. I feel like it's been years. Um, and that's going from 600 to 2000. So um, start and then it'll be um indexed for inflation. So 2026 is 2000. 2025 was still six 600. I think that's a, I think it's about time they increased that. Um, so I think.

Roger Harris: Interesting to see the impact that has on compliance though, because how many people now between 600 and 2000 that don't get a 1099 will think it became nontaxable. [00:48:00]

Annie Schwab: I'm sure that they, I'm sure we will have people doing that. Um, and then I don't. I can't even keep track of all the 1099 K reporting thresholds. It was like we've reverted back and forth and retroactively and all kinds of stuff. But I will say for 2026, um, it's at 20,000. So that's a nice jump there. Um, and 200 transactions. So, you know, if you've got, if you're used to seeing a whole bunch of 1099 k reporting [00:48:30] coming in from your clients, you're probably going to see fewer of those. Um, and again, I guess we'll, we'll see how noncompliance rolls out of that.

Roger Harris: Well, that should eliminate grandma yard sale problem.

Annie Schwab: Yeah, yeah yeah. Yeah. I think, I think it's again, I think it's all positive I think um, yeah.

Roger Harris: Okay. All right. Wrapping up. We're going to we're recording this on Wednesday, July the 29th. Um, so we're going to talk about something that will actually [00:49:00] become reality one way or the other tomorrow, Thursday, July the 30th. And I don't know when you'll listen to this podcast. So we're going to try to predict something. And when you listen to it, you'll know if we either got it completely right or completely wrong. Tomorrow, the Senate Finance Committee is supposed to do what's called marking up the Tax Act. Now, we've talked about the Tax Act before. Just a couple of things [00:49:30] that are important. Just I'll remind you of what's in the Tax Act. One of them is a client dashboard. You know that the IRS would have to develop where you can actually watch the processing of your return. And a lot of, uh, more information readily available. The online accounts would be enhanced. So that, uh, one thing that would be great to us is we could go in and pull transcripts without logging into each individual account, you know, that the practitioner would have the ability to go in and access [00:50:00] multiple transcripts if necessary, just general improvement to the online accounts. The key part here that that I was just in Washington dealing with a lot of you remember the loving case where the IRS had the authority to regulate return preparers, and then it went to court and they didn't have the authority.

Roger Harris: Well, basically, the Tax Act would give the IRS the authority to not regulate. That term is not there, but apply minimum standards. In other words, up to 18 [00:50:30] hours of CPE could be required. You would have to have a PTEN. You would have to pass a background check. The biggest thing is if they caught you doing something wrong, you're incompetent. Whatever. They can pull your PTEN and basically pull your right to prepare returns. So it, it, it creates, um, a semi regulated, but minimum standards for tax return preparers, half of which in this country today don't have any standard. So as [00:51:00] I told somebody the other day, right now, E A or CPA or an attorney could have their license pulled for doing something wrong, but the unregulated couldn't. Now we would be on the same playing field. So anyhow, they're marking up that bill in the committee tomorrow. What I'm told by people much more smart than me about the politics is that no one lets a bill in today's world go to markup. If they don't think it's going to get out of the committee.

Annie Schwab: Ah.

Roger Harris: So okay, there's optimism that it will get out of the committee. The second stage to [00:51:30] that is usually they don't let something get out of committee if they don't think it'll pass the full body. So there's optimism that the Tax Act, which Aaron Collins, the taxpayer advocate, she also benefits significantly from this legislation, has really asked people to go campaign for this. So it looks very positive on the Senate side that this bill could get passed on the Senate. The House is working on similar things, but they're doing [00:52:00] it differently. Instead of putting it all in one big bill, they're passing individual bills the same. The same minimum standards are there, but it's in a separate bill versus that. My sense is if it passes the House, I mean, the Senate with great bipartisan support, that it will also get through the House. Probably the House will have to accept the Tax Act because it's just one piece of legislation. I don't know the ins and outs, but there's the possibility it's not going to happen soon because they're on their own [00:52:30] recess for voting. I mean, for campaigning and all that sort of stuff. But that by the end of the year, we might get the Tax Act passed, which would put some pressure on the IRS, give some resources to the taxpayer advocate, but it would also give the IRS the authority finally to regulate tax prep work. And so we'll see. So I'm saying it's going to pass the Senate and eventually pass the House. So I'm either [00:53:00] Carnac or I'm stupid. One or the other. We'll see.

Annie Schwab: Well, I think I mean, if if what you say is true, if they usually don't send something to mark up unless it's got a really good chance, then I'm, I'll, I'll gamble with you and say that it's that it's going to go.

Roger Harris: So by the time you listen to this, you'll know whether at least it got through the the committee. Uh, it's possible depending on when you listen to it, it might have already been voted on the Senate. But I think the Senate's going out now. The House is already out until close to Labor Day. And then the Senate's out for a while, [00:53:30] and then it's election season. So they'll all be home. So it'll probably be year end stuff when the final passage. But it looks looks positive. And that's encouraging. And let's hope that it gets through.

Annie Schwab: Yeah. Well thank you for the update on that. And I'm glad to see you in your office and not on an airplane or an airport. So, um.

Roger Harris: But I'll see you next Monday in New Orleans.

Annie Schwab: We'll be at the IRS. Yeah. Come find us. We'll both be there. Um, if you're attending in New Orleans and, uh, [00:54:00] we'll go from there. So thanks again for listening. Uh, Roger, you want to close this out?

Roger Harris: Yeah. Thank you. Andy. As always, uh, for particularly spent a lot of time putting these things together while I'm flying all over the place. So I appreciate all the work you do. And again, it was really great to, to have people come up and say hello and tell us they listen. We appreciate that. So continue to do that. Whenever you run into us and enjoy the rest of the summer. Uh, it's, it's getting quickly over. It'll be fall before we know it. And it'll [00:54:30] certainly be September 15th and October 15th sooner than we want it to be. So again, Annie, as always, thanks for thanks again for all you do and for all of our listeners. Thank you for for listening today. And we hope you'll be back on another episode of Federal Tax Update podcast. Bye, everyone.