IRS Business Tax and Tax Pro Accounts May Get Slashed

Further cuts to the IRS’ almost $800 billion in funding from the Inflation Reduction Act are jeopardizing the newly introduced business tax accounts and recent improvements in its tax pro accounts. New bills in the House and Senate draw funding from the initial allocation and may lead to reductions in taxpayer service and improvements to the IRS's aging technology, like the new business tax accounts.

The first phase of the tax accounts was rolled out this past month to unincorporated sole proprietors with an active Employer Identification Number, but there were hopes to expand the program.

"The problem with the account now is that it's limited to sole proprietors, so it's very limited in scope," said Partner Bob Lickwar. "The business account is a really good idea. It's going to allow you to make sure that your name and address and EIN information are correct. But more importantly than that, it's going to allow you to check the status of your various returns. For sole proprietors, it's pretty limited right now to 941's and maybe some excise tax returns, but I think once this gets up and running like the individual accounts, this is a great idea."

According to Lickwar, it has plenty of future applications for helping clients track their tax filings and payments. "One of the things that we face as practitioners is occasionally being unable to access or get answers to client questions," he said. "We'll throw a question out there, for example, 'did you make all of your estimated payments?' And the answer is 'I think so,' and then when the return gets filed, all of a sudden a notice is flying back that one or two were missed."

This is a build-out of the existing individual online tax accounts, which Lickwar says has already seen positive results. "What we've tried to do with the individuals is have them all set up accounts, because then we can have them go in there and check their transcript and see what's actually being held on account and circumvent the problem even before it starts, and I think it's a great tool," he said. "Once they get up and running and full-fledged here, I think you're going to have the same results. I would encourage my business clients to set up an account as I've encouraged my individual clients to do so."

Even so, Lickwar noted there is still room for greater functionality with these online accounts. "I think they'll add these over time," he said. "What they'll do, for example, is if there's missing income, you can actually go in on the individual side and see where you received W-2's and 1099's from. It may not have all of the information that's actually reported on the form.”

Regarding businesses, Lickwar speculates it will be much the same. “I think you'll be able to do the same thing here if there are any 1099's issued to the business, so at least it will give you an idea where things are coming from and if there's issues,” he said. “Once they add partnerships and S corps and C corps — this is more in the experimentation process for them right now — I think it will be a pretty quick turnaround where they're able to upload the same type of information, including things like income reports, and more importantly, account transcripts, which will show prior balances due and payments posted for the current year in the form of estimated taxes. I think all of that will be added over time."

Continued improvements to the Tax Pro Accounts are likewise creating efficiencies for professionals during the annual return process. "I think the Tax Pro Accounts are really good because you can make sure, for example, that your CAF number is still up and running," he said. "You can look at powers of attorney and information requests. I think the Tax Pro Account is a really good idea for practitioners. It doesn't hurt to set it up. It allows you access to some more information. But that's got to work, in my opinion, in tandem with the client setting up an account as well where you can share the information.”

In particular, “one thing I like about the new Tax Pro Account is the ability to withdraw the power of attorney,” Lickwar said. “It may be a client who's no longer a client, or it may be a case that's already solved, and you're off and that power of attorney has expired. You go in there and get yourself off of it. That's a great feature."

Read the full article published by Accounting Today.