Saturday, March 11, 2017

Thoughts on why the 2017 tax filing season is off to a curiously slow start

Have you filed your tax return yet? Neither have I. Neither have millions of Americans.

Late_Tax_Returns_dismayed-taxpayer (2)

The weekly filing data the Internal Revenue Service delivers during high tax filing season shows that almost all the numbers are behind where filing was at this point last year.

Started slow, stayed that way: When filing season kicked off back in late January, IRS Commissioner John Koskinen said his agency was expecting 153 million individual tax returns to be filed in 2017. Most of those show up from January through the April deadline, which is on the 18th this year.

There's usually a big rush of returns during the first two months of the year as folks who've used their tax withholding as a forced savings account are eager to get their refunds.

This year, however, is different.

As of March 3, the IRS had received just more than 61 million returns. That's an 8.5 percent drop from the almost 67 million returns the agency had received by the first week in March last year.

That almost 9 percentage point filing decrease is this week's By the Numbers featured figure.

Tax pros slow, too: And it's not just do-it-yourself filers who are not, well, doing it themselves.

The 28 million or so self-prepared returns electronically filed so far this year are down 6.3 percent from last year. The drop is even more pronounced for tax professionals.

The slightly more than 29 million Form 1040s filled out by paid tax preparers and e-filed through early March is a decrease of more than 10 percent from 2016's filings at this time.

So what the heck is happening?

Ben Steverman in an article for Bloomberg offers four theories as to why the 2017 tax filing season is so sluggish. Below are his thoughts, with my comments and a possible fifth reason for slow filings this year.

1. Pure procrastination
The do-it-later trend in tax filing has been happening for years, although tax pros told Steverman that it is more pronounced this year.

Maybe it's because this year, as in 2016, the filing deadline is three days later, falling on April 18 instead of the usual 15th. Folks who tend to put off tax tasks anyway might be slower because they know they have even extra time.

2. The Trump factor
The new Administration's crackdown on undocumented immigrants has prompted many of these folks to forgo filing for fear of creating a tax paper trail. And yes, a lot of these unofficial workers do pay their federal taxes, using Individual Tax Identification Numbers (ITINs) instead of Social Security numbers.

This could account for some of the 6 million missing tax returns, but I doubt it's a major contributor.

My personal Trump tax effect take is that folks are taking longer to try to do what 45 apparently did: not pay any taxes. It takes time to explore all your legal tax avoidance options.

3. Refund delays
Earlier this year, the IRS had to hold certain tax refunds -- those that were generated thanks to the refundable Earned Income Tax Credit or additional child tax credit -- until Feb. 15. The IRS warned that many of the affected refunds actually wouldn't reach filers until the end of February.

Some tax industry officials told Steverman that the Congressionally-required refund delay through a wrench into the behavior of early-season filers who want their money ASAP. Hey, they've been doing this for ages, so who am I to argue. But it seems more logical to me that they would go ahead and file ASAP in order to get their returns in the system and get their tax cash back as quickly as they could, even with the delay. Not filing means it will take even longer to get their money.

I'm thinking these folks probably would file and, needing their tax money, opt for an associated refund advance loan or line of credit. Yes, those things are still around in slightly different forms and the mandated slowdown in the IRS issuance of refunds created a whole new market this year.

There's also the possibility that more folks are waiting on typically late-arriving tax statements such as K-1 forms. But those have always straggled and there's no reason while they would have a larger than usual impact this year.

4. Tax confusion
OK, this happens every year. Thanks Internal Revenue Code.

But the refund hold that was part of the Protecting Americans from Tax Hikes Act also might have caused problems for folks who aren't its targets. "Many people assumed this was the holding of refunds for everyone," Michael Millman of Millman Research Associates told Steverman.

There's also some confusion about possible tax changes.

Donald Trump has promised big, beautiful tax cuts are on the way and I've gotten questions since Nov. 9, 2016, about what tax reform under the new Administration might have on their 2016 taxes.

The answer is nothing.

If a tax overhaul does make it through this year, it could have provisions that are retroactive to the first of this 2017 tax year. But it's very unlikely (although Congress has done crazy tax stuff in the past) that anything would affect your 2016 return.

Still, some folks could be holding off on doing their taxes just in case.

5. Fewer fraudulent filers
A fifth theory that's been floated on social media (thanks Grant McMichael) is that tax crooks aren't filing. At least not yet.

It's true that IRS efforts to stop or at least slow down fake returns seeking fraudulent refunds are working. John Dalrymple, IRS Deputy Commissioner for Services and Enforcement, testified before Congress last week that over the past two years, the agency's Security Summit partnership with other public and private sectors of the tax world has "produced real results" when it comes to tax identity theft and refund fraud.

The number of people who reported to the IRS that they were victims of identity theft declined from 698,700 in calendar year 2015 to 376,500 in 2016, a drop of 46 percent, Dalrymple told members of two House Oversight and Government Reform Subcommittees on March 8.

Such results probably do mean that some crooks probably have forgone fake filings this year, too. But as much as I'd like it to be so, I doubt 6 million tax crooks have renounced their nefarious ways.

Expect filings to pick up: So what's the real reason so many of us have yet to file our taxes? I don't know.

Maybe the slow filing is just a hangover taxpayers are having from last year's crazy election year.

Maybe fewer folks are getting refunds so they're not in such a hurry to fill out their tax returns (I hear ya!).

Or maybe, probably, it's just an aberration. As the April deadline nears, things probably will pick up at IRS processing centers.

That's been happening since the filing season opened on Jan. 23. The first week of filing this year was down almost 33 percent from the year before.

But the number of returns the IRS received was off just more than 24 percent as we went into February. For the week ending Feb. 10, the decrease improved to 17.2 percent and crept up to a 13.3 percent drop the week ending Feb. 17. As February wrapped up, the number of returns filed was down just 10.6 percent from the same time period in 2016.

And things are improving incrementally as we go into March.

When will you do your part to get the IRS working on more tax returns? Me? I'll probably save my 1040 et al (again) for Uncle Sam's tax collectors who are still working after April 18.

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