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In the final days of tax season, tax professionals have been grinding through their clients’ tax returns while trying to reassure them in the midst of reports of layoffs and budget cuts at the Internal Revenue Service and the uncertain path of tax cuts legislation in Congress.

The uncertainty may be slowing down filings from taxpayers, which have been running behind previous years’ numbers.

“Not everyone is being as quick to turn in all the things that I need them to turn in, so we’ve been doing a lot of reaching out to clients, trying to get them to respond and upload documents that we need,” said Timothy Wingate Jr., EA, founder and president of G+F Business & Financial Consulting in West Palm Beach, Florida, and a member of Intuit’s Tax Customer Council. “I don’t know if they’re seeing a slowdown on their end where they’re not receiving documents in a timely fashion from their different employers or from other agencies. We’ve kind of come down to the wire. Usually clients are pretty quick.:Last year, about February, we didn’t have to really email them. They emailed us. I don’t know what’s really driving that, but clients are just moving a little bit slower.”

Taxpayers who live in areas hit by natural disasters will get some extra time to file, although only a few more weeks. “Many of our clients are asking questions whether to file a return or not in light of the variety of news about the potential reduction in force at the IRS,” said Miklos Ringbauer, founder of MiklosCPA in Southern California. “Taxpayers face challenges collecting information and attempting to remember what taxable activities they were engaged in. Many of them forget the 1099-NECs, 1099-Ks or 1099-HSA distributions and other required documents. This is especially true of those who are impacted by the Los Angeles fires. Our team is working tirelessly to help our clients to stay focused and locate the missing information so taxpayers can complete their filings and receive their tax refunds as soon as possible.”

Many clients will be filing for extensions. “We anticipate having a higher level of extensions this year versus previous years, as many of our taxpayers have been impacted by the fires of Los Angeles County,” Ringbauer added.

Robert S. Seltzer, a CPA at Seltzer Business Management Inc. in Los Angeles, lost his home in the Palisades fire. “The IRS and [state] have postponed the due date for returns and payment of tax for individuals and all entities,” Selzer said. “In addition, because I was affected by the fire and we maintain records for clients who live outside of our county, we were able to do a bulk extension request. 

“We’re working at a consistent deliberate pace as opposed to crazy tax season hours,” he added. “Instead of taking a break in late spring and early summer, we’ll keep the pace up so that September and October aren’t too crazy.”

Others have been experiencing problems with the cutbacks in IRS employees. “The concern is, if we don’t have access to the IRS for timely information, the IRS clients, which [includes] both practitioners and ultimately our clients and taxpayers, are not going to be able to have the ability to be serviced correctly,” said Joseph Perry, CPA, national tax leader and managing director at the accounting and professional services firm CBIZ. “We had a situation where one of our clients was audited, and they were done with the audit with ‘no change.’ The auditor was ready to submit his submission, but they’re no longer there. So what happens? Now it has to go back to the supervisor, and either the supervisor will have to take that case on and continue with the no change, or if there’s any question, then there may have to be a re-audit. As long as the work papers support the ‘no change,’ they can’t question them anymore. I’ve seen this before in the past where an auditor was moved, and it’s almost like starting all over again. We know of at least one example where an audit was closed, and this will definitely affect the taxpayer. I think you will see some audits being shifted. I know some of the caseload is getting moved around.”

Wingate is still hearing back from the IRS about clients who have cases with the agency. “As far as the IRS goes, I have a couple tax resolution cases out there, and I’m still receiving communication from the IRS that’s pretty timely,” he said. “I just had a client today who just gave me a letter from the IRS that was sent out in January, and he’s just now opened it. But he got that out to me, and they’re reassessing his tax from back in 2022, so it does seem that the IRS is still moving at a fairly decent pace. Maybe that’s because of technology.”

The political turmoil has been affecting tax professionals as well as clients. “Clients have been commenting on political developments affecting the IRS,” said Jean-Luc Bourdon, CPA, of Lucent Wealth Planning in Santa Barbara, California. Some express frustration with reduced government services while tax collection continues unchanged: ‘They’ll cut service but still want money,’ a taxpayer said. Another said, ‘I guess the IRS is still collecting taxes.'”

The reports of cutbacks at the IRS are bound to have an impact on taxpayer actions. “Taxpayers are thinking of how IRS staffing reductions affect their own tax situations, and it affects their behavior in subtle ways,” Bourdon said. “One client faced with estimating cost basis for stocks with unknown purchase prices found comfort in the reduced likelihood of scrutiny. A homeowner who sold his property struggled with the complexity of differentiating between routine repairs and capital improvements over many years. He took the stressful task more lightly when considering the diminished chances of his calculations becoming contentiously challenged given current IRS resource constraints.”

“Taxpayers are adjusting their compliance anxiety levels based on their perception of enforcement realities,” Bourdon added.

The IRS cutbacks may be showing up in other ways that reflect the shrinking workforce. “With the changes at the IRS, we’ve recently seen an increase in notices where the IRS has unfortunately failed to apply payments made by check to the correct taxpayer accounts,” said Adam Goehring, a principal with Baker Tilly’s tax team in Minneapolis. “We’ve been recommending to all of our clients to make any and all tax payments via their account at IRS.gov.”

Clients are also concerned about cutbacks in the Social Security Administration. “There’s been a reluctance from some clients to apply overpayments to 2025 tax,” said Mary Kay Foss, a CPA in Carlsbad, California. “They want cash refunds in case they might not be available later. There’s some concern that Social Security payments will stop or slow down. I’m not used to clients who are as aware of cash as in past years. There are also more extensions this year, it seems.”

Form 1099-K surprises

The tumultuous stock market may be one reason why clients have been putting off their tax filings this year, as well as the lowered threshold for receiving the Form 1099-K from third parties like payment apps and gig economy businesses. “The stock market is down, and we are calling people to tell them they owe taxes for 2024 when the market was soaring. Not fun,” said Gail Rosen, a CPA in Martinsville, New Jersey. 

“Many clients suddenly have a business we never knew about [but do now] due to the 1099-Ks they received,” Rosen added. “It’s phone calls explaining cost of goods sold and deductible expenses.”

Wingate has been careful to tell his clients ahead of time to anticipate receiving those 1099-K forms. “The only people who would have been surprised is if they’re not working with an accounting firm or an accountant because most accountants were communicating this out months and months in advance, so clients were expecting them and were waiting for them,” he said. “In our case, we explained how important it is when you work with an accounting firm, and especially when you receive those 1099-Ks, you need to be doing other things to offset that income.”

TCJA concerns

Other tax clients are concerned about the expiring provisions of the Tax Cuts and Jobs Act and other concerning financial news. 

“There’s been confusion this year because of the general financial news, cutbacks at the IRS, rumors and speculation,” said Michael Brennan, CPA and director of tax services at Berkowitz, Pollack Brant Advisors + CPAs, New York. “We’ve had some clients jokingly wonder if they even need to file this year. We’ve advised them to assume it’s business as usual.” 

“We aren’t encountering any issues with the 1099-K reporting,” Brennan added. “If anything, the 1099-K reporting has prompted more small businesses to become more engaged with keeping up-to-date and accurate financial records.”  

“A lot of the conversations we are having are around the expiring [TCJA] provisions,” Brennan said. “Bonus depreciation, estate and gift taxes, the pass-through income deduction, mortgage interest deduction and the SALT cap are topics on clients’ minds.”

“It’s difficult for clients to make financial and tax plans when there’s uncertainty and speculation,” Brennan said. “We’re hoping Congress makes decisions earlier in the year so clients have enough time to adjust and adapt.”

The fate of those expiring tax breaks has become part of tax season consultations. “The uncertainty regarding many of the sunsetting TCJA provisions is front and center in our conversations with clients,” said Benjamin Aspir, CPA, a tax partner with Eisner Advisory Group in Iselin, New Jersey. “Additionally, the 163(j) 30% limit on tax-adjusted EBIT has been felt by many clients that incur material interest expense.” 

“The recent increase in late 2024 in the 1099-K threshold to $5,000 for 2024 alleviated many of the concerns of our clients,” Aspir added. “[Next year] may be a different situation, as the threshold decreases significantly.”

Stock market gyrations

The TCJA and the turbulent stock market alike have been causing angst.

“With the potential TCJA sunset [this year], we’ve been having many conversations about both income tax planning and estate tax planning for 2025,” Goehring said.

“With recent stock market conditions, we’ve been having discussions with clients around their cash flow management for April 15 tax payments and various strategies,” Goehring added.

“This tax season was all unicorns and butterflies until the trade war started. Everything has stopped in the past week,” said John Dundon, an EA and president of Taxpayer Advocacy Services in Englewood, Colorado. 

“Esteemed pillars of the Colorado industry and local communities suddenly contemplate simply not filing or paying income taxes,” Dundon said. “I’ve been talking all week about the definition of ‘willful’ as it pertains to IRC 7203 and the standards I require for my signature on any tax forms.”

BOI and DOGE

What stands out for the 2025 season to Larry Pon, a CPA in Redwood City, California, is the confusion over beneficial ownership information reporting due to the ever-changing court rulings and enforcement changes by the Treasury Department and its Financial Crimes Enforcement Network. “The rules kept changing since November, December, then throughout tax season,” Pon said. “What were the various courts telling us what to do? How about the constant changing guidance from FinCEN? I guess as of today, domestic business entities are not required to file the BOI, but foreign entities still need to file. What about the entities that did file already? Can they delete that very private information since they are no longer required to file? 

“As tax professionals,” Pon added, “we were deluged with advertising from companies who offered to help with this and many were dubious, especially the software companies, when the filing on the FinCEN website was free.”  

“The big unexpected change this year is DOGE,” Pon said, adding that he knew of probationary IRS employees in training who were fired in the middle of class. “Fortunately, none of my personal interactions with the IRS was affected, except it seems to be taking a long time for the IRS to respond to any correspondence. Some colleagues were in the middle of an IRS audit and their IRS revenue agent just disappeared.”   

“There is certainly confusion with those working in the gig economy. It’s been frustrating trying to get them to do better record keeping,” Pon said. 

Health issues also affected tax season for some tax professionals. “Things were going very smoothly until I tested positive for COVID on March 28,” said Morris Armstrong, an enrolled agent and registered investment advisor at Armstrong Financial Strategies in Cheshire, Connecticut. “I was pleasantly surprised by [a] client’s warm wishes and letting me know that extensions were OK. Moments like this show the strength of the relationship.” 

Both he and Pon have noticed more inadequate withholdings than in past seasons.

“I don’t expect delays in filing or in refunds being issued,” Armstrong said. “That’s proven correct year to date. On the resolution side, I expect more delays, and clients will have to be patient as the IRS works through their issues.”