Tax industry leaders warned of a confluence of challenges in the upcoming filing season, between the government shutdown, retroactive tax provisions in the One Big Beautiful Bill Act (OBBB), and operational changes at the IRS. Meanwhile, Ken Kies, who is serving as both Treasury Assistant Secretary for Tax Policy and acting IRS Chief Counsel, stressed that a plan is in place.
Council for Electronic Revenue Communication Advancement (CERCA) board members discussed their top concerns during an October 22 panel discussion – including potential processing delays, taxpayer confusion over the new law, and fraud risks.
“It’s kind of like the perfect storm,” said Jackson Hewitt’s Michele Geraci. She noted that even before the shutdown, the loss of institutional knowledge at the IRS was palpable. Geraci says those on the “happy path” for return processing are “probably OK.” However, with the agency operating with a skeleton crew, she worries about its ability to handle exceptions.
Jamie Shaw, a senior director at Green Dot, suspects the shutdown is creating a significant backlog. With the recent extension deadline passing, Shaw said paper returns are likely piling up. “They’re already behind before they begin,” she said.
The shutdown could also impact practitioners, said TaxWell’s Jared Ballew. New professionals may face delays in obtaining their Electronic Filing Identification Numbers (EFINs), hindering their ability to prepare for the season, he noted.
Navigating the OBBB Changes
A primary concern for the upcoming season is the potential for misunderstandings of OBBB provisions. That is particularly true for retroactive provisions like the “no tax on overtime” and “no tax on tips” deductions. Andy Phillips, of H&R Block, pointed out that there are “meaningful misunderstandings” of how these provisions work. For example, the overtime benefit only applies to the premium portion of the pay – the “half” part of the time-and-a-half – a detail many taxpayers may miss.
This confusion could lead to challenges for preparers, who will need to help clients reconstruct income from pay stubs. W-2s for 2025 will not have dedicated boxes for this information. Geraci also warned of potential “refund shopping,” where taxpayers seek out preparers who will give them a larger refund.
Compounding the issue is state conformity. When the OBBB passed in July, most state sessions had already ended, Ballew explained. “It’s not simply just that we have to build that up for the federal program, but how does that complexity roll down into the other 43 different states?”
Refund and Payment Hurdles Ahead
Panelists highlighted two major operational changes that will directly impact taxpayer refunds and payments: the transition away from paper checks and the resumption of student loan offsets.
The government’s initiative to eliminate paper checks may present taxpayer hurdles. While paperless policy aims to reduce costs and fraud, it will be challenging for the unbanked, certain religious groups, and those who are simply unwilling to provide their bank information to the government.
Despite recent announcements, panelists stressed that the IRS will not be 100% paperless. While some taxpayers may seek a one-time waiver, Phillips noted that others are “just going to need a lifetime waiver.” He hopes for those taxpayers, obtaining a waiver is not “an annual kind of clunky or friction-filled process.”
Another critical change is that taxpayers who file without providing a bank account may have their refund held for up to six weeks while the IRS contacts them to obtain the information. Shaw sees a risk of phishing campaigns targeting these taxpayers. As the IRS sends notices asking taxpayers to provide bank account information to receive their refund, fraudsters will likely mimic these communications to steal sensitive data, she explained.
In addition, panelists noted that after a five-year pause, student loan payments have resumed, and taxpayers in default will once again be subject to the Treasury Offset Program. Shaw said that over 4 million taxpayers are currently in default and could see their refunds reduced or eliminated.
She recalled the IRS previously sent an indicator with the return acceptance, allowing preparers to warn clients upfront about a potential offset. Now, she said, “taxpayers are not going to find that out until after the refunds have been released,” leading to confusion and frustration.
Digital Asset Reporting Debuts
Adding another layer of complexity, 2026 will be the first filing season featuring the new Form 1099-DA for digital asset reporting. Phillips anticipates that 10 to 15 million taxpayers will receive these forms for the first time, many with a high volume of transactions.
“This first year, that basis reporting is optional, and in a lot of cases, people are not going to … have their basis reported to them,” Phillips said. Preparers will need to help clients reconstruct their cost basis. They also may need to address potential non-reporting in prior years, a conversation that could be difficult for many taxpayers.
IRS’ Plan
Kies, however, told the CERCA audience that the IRS and Treasury “are very focused on what we have ahead of us.” Kies acknowledged the current IRS furloughs and the need for OBBB implementation guidance – but disagreed with recent reports of the IRS’ lack of preparedness for the upcoming filing season.
He shared that on Monday, the Office of Chief Counsel brought back 45 lawyers who are key in OBBB guidance drafting. “We are keenly focused on getting the guidance out,” Kies stressed.
As far as the still-furloughed IRS staff, Kies said there’s “a plan, once they come back, to catch up with what has slipped.”
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