The Tax Relief for American Families and Workers Act is currently stalled in the Senate but is expected to continue to move forward in some form over the coming weeks. With the potential passing of the ACT, tax law changes could be taking effect mid-tax season. The IRS commissioner recently testified before Congress that it would take the IRS 6-12 weeks to be able to implement the changes to the Child Tax Credit alone.

The Act, passed by the House on 1/31/23, expands the Child Tax Credit but scales back the fully refundable monthly payments from the 2021 American Rescue Plan Act version.

IRS Commissioner Werfel confirmed to the House Ways and Means Committee that only 10% of households may see modest tax refund adjustments, but that still means changes to potentially already filed tax returns. It is unclear at the moment if the burden to file amendments would fall to the taxpayer.

In addition to the Child Tax Credit, the bill pushes to have new IRS funds be focused on expanded audits of higher-income taxpayers as well as corporations. The funding boost the IRS received last year was originally earmarked to enhance the audit process to drive tax revenue back into the system.

Werfel highlighted last week how the funding improved taxpayer services despite threatened budget cuts. New funding expanded IRS walk-in centers from closed/understaffed locations with long lines to 50 new fully staffed centers with extended weekend hours and pop-up locations in remote areas. Phone assistor staffing rose by 5,000, dramatically improving call answering capacity. Funding also enabled updating stagnant IRS technology tools to match private sector innovations in financial services and retail. These are welcome changes to tax practitioners and taxpayers alike but it’s not certain how much a mid-tax season law change could threaten the improvements.

Watching the progression of the bill over the next weeks will hopefully provide more insight into the planned changes and the IRS response. Practitioners should pay close attention to the progression of the bill as it moves through the Senate as the potential for already filed returns to require changes remains on the horizon.