A surge in do-it-yourself tax return filers and IRS.gov website use came from millions of nonfilers rushing to claim economic impact payments (EIPs), not because of a deeper trend, a longtime tax agency observer said.
DIY e-file receipts for the 2020 filing season were up 23 percent, from 56.7 million through July 26, 2019, to 69.7 million through July 24, according to the IRS weekly filing season statistics. It’s the largest increase in DIY filing since at least 2010, according to agency records.
Meanwhile, visits to the IRS’s website increased 165 percent, from 528.3 million through July 26, 2019, to almost 1.4 billion through July 14, also by far the largest increase in use since at least 2010, according agency records.
“I think the numbers will go back to status quo” once EIPs and other tax-administration-driven coronavirus emergency measures cease, said Mark Mazur, co-director of the Urban-Brookings Tax Policy Center.
Tax professionals said they haven’t noticed any significant impact from the DIY surge. “It’s a transient shift. I think it will go away,” said Jean Nelsen, former president (2018-2019) of the National Association of Enrolled Agents.
Locked Down
H&R Block claimed a slice of that DIY e-filing market, posting a 4.4 percent boost through July 17 in online DIY returns using the company’s software.
On the other hand, “The challenging operating environment due to the COVID-19 pandemic and various state and local orders limited the company’s ability to operate its retail network,” which experienced a 1.1 percent decline, the company said in an earnings release July 28.
Mazur noted that tax professionals didn’t lose significant ground in the competition for clients, down just 0.4 percent, from 74.4 million through July 26, 2019, to 74.1 million through July 24.
The vast majority of the e-file DIY and website increases came from people who didn’t need to file except for their EIPs, and most won’t file again, Mazur said.
Users of volunteer income tax assistance sites closed by the government at the start of the pandemic, and people unable to reach their usual brick-and-mortar preparers because of lockdowns, likely account for most of the rest of the increases, Mazur added.
Billing Questions
Most DIY filers only came to tax professionals for help when they became confused by the IRS’s online application for nonfilers to register for stimulus payments, said Nelsen, of Nelsen and Wong.
High-income-oriented tax professionals, already exhausted by the extended filing season, have been debating the merits of billing clients for their assistance qualifying for Paycheck Protection Program or economic injury disaster loans, said Nelsen.
“Some of our colleagues are taking the position that this work to ‘help’ our clients navigate all of this is not billable,” Nelsen said. Others take the contrary view, she said: “We can't provide free work.”
Nelsen said that while her firm doesn’t have any recent experience with clients going DIY, she worries that taxpayers trying to file DIY for their stimulus payment could fall prey to unenrolled, unscrupulous, and unregulated return preparers who could steal their identities as well as their EIPs.
To Extend or Not to Extend
Susan Allen, American Institute of CPAs senior manager for tax practice and ethics, said uncertainty around the lockdowns and tax consequences of the coronavirus emergency caused many CPA clients, particularly those with more complicated returns, to file extensions this season.
By contrast, Nelsen said most of her clients’ 1,000 or so returns were filed before the July 15 deadline. Some filed early because they needed a tax return for an emergency loan application, she said. Others simply had more time on their hands because their businesses were down, she said. Either way, the extensions filed for her clients “are way down” compared with recent years, Nelsen said.
Mazur said that while there’s plenty of work for tax professionals, the future could hold unwelcome surprises.
“You want people to use the best channel for themselves,” Mazur said. Older taxpayers more reliant on professionals still retire from the tax rolls and die, while younger, more tech-savvy taxpayers replace them, he said.
“If you could file on your phone and then have your refund come to you on Venmo, that would be [great] for 20-year-olds,” Mazur said. “But we don’t have that because we have 60-year-olds making the decisions at IRS.”