IRS Changes Filing Deadline - How Much Will Taxpayers Benefit?

More than a few taxpayers will welcome the IRS’s announcement instituting a one-month extension of the April 2021 individual tax filing deadline. Pressure had been building over several weeks for the Treasury Department to do so, especially after Congress enacted unexpected changes to tax laws earlier this month. The question must be asked: how much will this latest action ultimately benefit taxpayers?

In 2020, as the pandemic created unanticipated administrative challenges for taxpayers, practitioners, and the government, National Taxpayers Union and its research arm built a strong policy case to extend the deadline for that tax season. And while the intent behind this year’s extension is understandable and laudable, 2021’s move actually is different, for several reasons that ought to concern taxpayers.

  • Taxpayers have always had the option to obtain an automatic filing extension to October 15 of this year. Thus what filers really needed most was relief from the payment deadline, and they now have an extra month to sort out some of those details.  Based on the experience of 2020,  Congress and Treasury ought to have been able to plan more deliberative solutions to the payment issue, before the American Rescue Plan Act (ARP) passed. The fact that the estimated tax payment deadline remains at April 15 is a sign that insufficient forethought was given to other tools at policymakers’ disposal. 

  • For example, with many Americans receiving 1099s for jobless benefits never paid to them, ARP throwing new tax changes into the mix, and lingering questions from the December 2020 COVID package, it has been difficult for taxpayers to calculate their estimated liability for purposes of obtaining a conventional filing extension. An ideal response would provide more penalty and interest relief for underpayments so that the existing filing extension process can be more effectively utilized.

  • Many taxpayers could, with the help of advisors and software, file their returns (and in many cases receive refunds) quickly if they could get answers to their tax questions in a timely manner. But access and response rates on the IRS telephone assistance hotline have plummeted even as the Service has been limiting the scope of inquiries it will answer. Improving those rates as well as the quality of assistance should be a priority.

  • The Government Accountability Office recently offered several criticisms of the IRS’s responses during the 2020 filing season, including the fact that many employees were underutilized due to lack of procedures or planning well after COVID arrived. Taxpayers, practitioners, and private-sector services have quickly adapted to “new normals” for the tax system; the IRS still has some catching up to do.

Unlike the 2020 deadline extensions, the 2021 delay seems more about helping the tax agency than about helping taxpayers. The IRS will need to spend additional money (ultimately at taxpayer expense) recoding its systems for the new date, while fundamental shortfalls in customer service persist. Our system of tax administration has a long way to go in recognizing the new as well as longstanding realities highlighted above, and more shuffling of filing dates won’t get us there.