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As tax season commences this Monday, the Internal Revenue Service (IRS) and tax professionals are bracing for potential last-minute tax law changes due to a pending congressional deal. The deal, currently in progress, aims to reinstate tax breaks, focusing on enhancing the Child Tax Credit. However, the retroactive nature of potential legislation is causing significant concerns among experts.

Dave Kautter, a former acting commissioner of the IRS, emphasizes the necessity of improved communication between Capitol Hill and the IRS regarding the intricate process of implementing retroactive tax legislation. Last year, I witnessed some positive strides in the IRS’s taxpayer service, with faster processing times and shorter wait times for phone service. However, the agency needed to achieve all its goals for processing tax returns on time.

To address the challenges posed by an expected 128.7 million individual tax returns, the IRS has bolstered its workforce using the Inflation Reduction Act 2022 funds. The aim is to ensure taxpayers receive the support they need, especially in light of potential changes to the Tax Code.

The Tax Relief for American Workers and Families Act, introduced recently, encompasses a variety of provisions, including a scaled-back version of the enhanced Child Tax Credit and other aspects related to disaster relief, Low-Income Housing Tax Credit, and more. However, bipartisan support has not shielded the bill from opposition, particularly concerning the Child Tax Credit, putting pressure on House Speaker Mike Johnson, R-Louisiana.

One significant hurdle lies in the bill’s proposed end date for the Employee Retention Credit on Jan. 31. With the potential for retroactive implementation if the bill passes in February, the situation becomes more complex. Todd Simmens, tax policy and legislation technical practice leader at BDO USA, notes the challenges ahead, predicting that the bill may not pass before tax season begins on Monday.

While Republicans on the House Ways and Means Committee reassure that the legislation instructs the IRS to update its systems promptly, potential amendments during a Senate markup could complicate matters further. The committee claims that updates to the IRS systems will be expedited, minimizing the need for taxpayers to file amended returns due to changes in the Child Tax Credit.

Kautter underscores the importance of minimizing amended returns, as they pose a challenge for the IRS and taxpayers. However, he remains optimistic about the IRS’s ability to handle the situation, citing the agency’s positive and collaborative culture and experience in navigating similar challenges.

As the tax season unfolds amid the ongoing congressional deliberations, the IRS faces the challenge of adapting to potential legislative changes while ensuring a smooth filing process for millions of taxpayers. The evolving situation underscores the complexities of retroactive tax legislation and the need for effective collaboration between government entities to minimize disruptions during this crucial period.

Source ( Accounting Today News).