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IRS prepares for flood of last-minute returns

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The Internal Revenue Service is getting ready for an onslaught of tax returns arriving by Tax Day on Monday, though many taxpayers will be eligible for automatic extensions due to natural disasters across the country.

The tax deadline is April 15 for most taxpayers, but taxpayers in Maine and Massachusetts will have until April 17 because these states observe the Patriots’ Day holiday on April 15 this year and April 16 is the Emancipation Day holiday in the District of Columbia. Other taxpayers in disaster areas, certain active-duty military members and citizens living abroad automatically get more time to file.

The IRS estimates that 19 million taxpayers will file for an automatic extension this year. It’s already received over 100 million tax returns, and tens of millions more are expected to be filed as Tax Day approaches.

“Delivering tax season is a massive undertaking, and we greatly appreciate people in many different areas working long hours to serve taxpayers as the tax deadline approaches,” said IRS Commissioner Danny Werfel in a statement Friday. “This effort reaches far beyond the IRS and includes hard-working tax professionals, software providers, the payroll community as well as our colleagues in the state tax agencies. Their work helping taxpayers makes a difference.” 

He noted that millions of taxpayers across the nation will be working on their tax returns during the final hours. There are various free tools on IRS.gov to help answer basic tax law questions, provide free filing options, update refund status and even provide ways to request an extension for more time to file. The IRS has also expanded its special assistance for taxpayers through the final weekend of tax season with special Saturday hours at 70 Taxpayer Assistance Centers.

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The Internal Revenue Service building in Washington, D.C.

Samuel Corum/Bloomberg

This year’s tax season has gone relatively smoothly, thanks to the lack of major changes in the tax laws. The tax extenders legislation that passed in the House in January has so far remained stalled in the Senate amid growing opposition by Republicans on the Senate Finance Committee. It could have meant some mid-tax season adjustments by IRS programmers in how much could be claimed on the Child Tax Credit and revived a number of expired business tax breaks, with a flood of amended returns sure to follow. But without those changes, and many of the pandemic tax breaks lapsed, tax professionals are getting to experience a more normal tax season. The IRS is still able to draw on the expanded funding it received from the Inflation Reduction Act of 2022 to improve its technology and customer service, although the $80 billion appropriated over a decade has since been reduced by around $20 billion.

Of the $60 billion in long-term modernization funds provided by the Inflation Reduction Act, the IRS through 2023 had spent about $4.4 billion of it, mostly on taxpayer services and operations support. “IRS employees have proven, once again, that the decision by Congress and the administration to invest in and rebuild the agency was a wise one,” said National Treasury Employees Union national president Doreen Greenwald in a statement Friday. “As more than 100 million taxpayers have witnessed so far this season, the IRS is better equipped to answer their questions, guide them toward filing accurate returns and deliver their refunds quickly.”

Tax professionals have noticed the difference. “I would say that overall, I feel like things are better, ” said Eric Bronnenkant, director of tax at the investment advisor Betterment. “Obviously, you compare them to during the pandemic, when they passed, when they had all these stimulus payments, and all sorts of special provisions due to the pandemic, that definitely made things a lot more complicated. While I know that there are many people who miss some of those special pandemic provisions, the fact that we’ve gotten back to a more stable normalized level has arguably made the overall tax-filing season smoother, but not perfect.”

The deadline for claiming one of those pandemic tax breaks is about to expire on May 17: the Recovery Rebate Credit. “The May 17, 2024 deadline is fast approaching for taxpayers who have not yet filed a 2020 tax return to claim a refund of withholdings, estimated taxes or their 2020 Recovery Rebate Credit,” wrote National Taxpayer Advocate Erin Collins in a blog post Thursday. “The IRS estimates that almost 940,000 of the nation’s taxpayers have unclaimed refunds totaling more than $1 billion for tax year 2020 and encourages eligible non-filers in 2020 to claim their Recovery Rebate Credit before the May 17 deadline.”

Taxpayers may still face some hurdles this tax season, especially if they worked in multiple states last year. “That’s an extra challenge, particularly for road warriors who could be filing in five or more states, depending on how many places that you’ve worked and what those specific state rules are,” said Bronnenkant. 

He noted that he often gets questions from clients about filing for tax extensions as the deadline approaches. “An extension to file is not an extension to pay,” said Bronnenkant. “You’re still expected to pay what you think that you owe when you file right now, or when you file for an extension. That doesn’t give you any more extra time to pay. It just gives you extra time to gather all your information. You still want to make the best guess of what you think that you’re going to owe and pay that now.”

Similarly with individual retirement account contributions, taxpayers who want to set aside money for retirement, can make up to $6,500 in IRA contributions if they’re under the age of 50, or $7,500 if they’re over age 50, up until April 15. “Even if you’re on an extension, that doesn’t give you any extra time to contribute to your traditional or Roth IRA,” said Bronnenkant. “Maximizing those tax-advantaged accounts is definitely on the top of people’s minds for sure.”

There are some exceptions for Self-Employed Pension plans and the SEP IRAs associated with them. “For some self-employed people, they may also have a SEP,” said Bronnenkant. “For the SEP, if you’re on extension, you can actually contribute until October 15, so that gives you extra time. The rules for that are a little bit different than the traditional and Roth.”

Some taxpayers are bypassing their tax preparers and trying out the IRS’s new Direct File free tax software that’s being pilot tested in 12 states this tax season for those with simpler tax returns. The IRS launched the program last month and it’s seeing steadily increasing usage, recently, adding a new feature in recent days to automatically import a taxpayer’s adjusted gross income information from last year’s tax return.

The IRS hopes to expand the pilot program next year more widely with additional features, assuming the program isn’t shut down by Congress or the next administration after the November elections. 

“We are actually doing some more user research right now with Spanish-speaking filers,” said Ayushi Roy, deputy director of New America’s New Practice Lab, which helped carry out a feasibility study for developing the Direct File system. “We don’t have a clear sense which tax scenarios ought to be prioritized if this is continued. We might find that it’s something like student loans is actually maybe a scenario to cover, or joint filing or shared custody. We don;t have that information yet. There’s sort of a top 10, but whittling it down is still a work in progress.”

Even if the Direct File program continues, she doesn’t see that as a threat to professional tax preparers. “Last year, of the 162 million returns that were filed, 150 million were electronically filed, and more than half of that, 85 million specifically, were filed by tax professionals,” said Roy. “That’s a higher ratio of preparation by professionals than self-preparation by software than previous years. That trend is actually really interesting and I am interested in seeing how that figure ultimately lands this year. It is worth noting, though, it will be hard to evaluate by April 15 because we have so many natural disaster-related extended filers, particularly in California and some other states that dealt with fires and flooding in the past filing year, so I don’t know how much we’ll be able to tell from the data after the 15th versus data in the fall.”

There will still be a place for commercial tax software as well, and some of the vendors in the Free File program and beyond seem to be lowering their eligibility requirements. “The Direct File program is not in the business of taking over the process of tax preparation,” said Roy. “The tax preparation landscape is rightfully varied, with lots of options for different people that work for different situations. That’s the right way for the landscape to exist. The purpose of the Direct File program was an effort to fill a gap in an existing market, and if that gap can be filled through other means, including lifting income eligibility restrictions in TurboTax and H&R Block, that to me feels like a win.”

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IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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