After a mere two short weeks of accepting tax returns for the 2023 tax season, the IRS is already beginning to backtrack. In California, Virginia, and other states, the Internal Revenue Service is taking back its advice of telling taxpayers to file as soon as possible.
Overview
A statement was made by the national tax collector at the beginning of February that has gone unnoticed by many. The statement said that any individuals confused about the taxability of state rebates they received last year should “wait to file their returns until additional guidance is available or consult with a reputable tax professional.”
The statement went on to say that the IRS was “aware of questions involving special tax refunds or payments made by states in 2022.” At issue is whether billions of dollars sent by states to taxpayers last year to help them counter the effects of rising consumer prices should be treated as taxable income by the federal government. The tax collector said expects to provide clarity on the issue “for as many states and taxpayers as possible next week.”
This nowhere announcement has caused many to be displeased, as the last two tax seasons have been horrible and riddled with delayed refunds and humongous backlogs.
Statement From Tax Foundation VP
Jared Walczak is the Vice President of State Projects at the Tax Foundation in Washington D.C., and he was not afraid to voice his distaste. “The IRS had plenty of time to determine whether this was an issue. “Waiting until tax season began and then simply raising a possibility throws tax season into chaos.”
Headaches on the Horizon
If taxpayers have already filled their returns in the states affected by this statement, the potential of encountering several bureaucratic obstacles has increased significantly. When entries are messed up on federal tax returns, a series of processing delays will ensue and an amended return will have to be filed. All of this depends on the IRS’s decision on whether or not money that was sent by states to taxpayers last year is taxable income.
“For taxpayers and tax preparers with questions, the best course of action is to wait for additional clarification on state payments rather than calling the IRS,” the IRS said in its statement. This is the IRS’s friendly of saying picking up the phone and calling them will do nothing. This is not new information however as last year the agency had one employee to answer every 16,000 employees.
Wrap Up
It only took two weeks into our new tax season for the first IRS blunder. Taxpayers and preparers all around the country are being left in the dark in this situation. Visit DSJ.us for the latest IRS updates and guidance.