This is my interview with Ryan Ellis, an IRS Enrolled Agent and a veteran tax expert. He is on Twitter at @ryanlellis and has recently written on the ghost of taxes future for the Wall Street Journal.
Ryan and I had a fun chat about what exactly is happening with taxes this year. We talked specifically about the chaos that was born out of the Advance Child Tax Credit and why it is throwing so much complexity into what would normally have been a straightforward tax problem.
I like doing my taxes. Yes, it is a maze of rules and structures, but I like rules and structures. It’s like a puzzle game except that, if you plan appropriately and learn to play the game the right way, you get money. I find that immensely satisfying.
This year I got my taxes done early, sent them in, and soon received a letter from the IRS informing me that I had not done some basic calculation correctly. This seemed unlikely to me since I’m pretty careful when inputting my information and TurboTax usually catches those kinds of errors.
Nevertheless, the IRS seemed determined that I owe them a pretty decent chunk of money.
I’m ultimately unworried for myself concerning this snafu. I have a good sense of what to do and how to respond to the IRS on this. But I read this problem as a hint of what could be an enormously chaotic tax season. If simple transcription calculations are being flagged as problematic, the average person isn’t going to know how to deal with that. Getting a letter from the IRS means going back to check or redo a tax return, which is a pretty big stressor for many people. Additionally, if you’re waiting on a refund, the IRS getting an essential piece of information wrong is going to delay your refund until you get things sorted out. If this happens to a lot of people, that’s going to be a lot of stress, a lot of letters, and a lot of money left in a state of limbo.
So I reached out to see if I could talk to someone who might have more experience and a larger view of the situation than I have and Ryan Ellis came to my rescue.
The Child Tax Credit Boondoggle
Back in mid-2021, the Biden administration came up with what was supposed to be a brilliant game-changing idea: instead of giving people their child tax credit at the end of the year, give it to them in the form of cash every month. This was brilliant because 1) people would get a check for cash every month, seeing how the government is giving them money, and 2) it didn’t cost the government anything, they were just shifting the timeframe of this tax credit. This was an awesome PR idea, an easy win at virtually no cost.
But that easy solution had to work its way from “good idea” to “how are we going to implement this” and, somewhere along the way, that simple and easy solution became a mess.
To start out, those 6 months of advance tax credit was money that people were used to getting back on their tax refund and many people have planned their tax finances around this reality. Messing with that pattern was inevitably going to cause problems down the road.
But that problem was just the beginning. If you’re married with kids, you probably have two identical Letter 6419s from the IRS, one for you and one for your spouse. The idea from the IRS was that sending two letters to the two custodians of the children would allow married couples to file separately and still claim a portion of the child tax credit on each return. But you have to know that these letters are not duplicates of one advance tax credit sent to two people but that each letter represents half of the total tax credit split between two people. They must be added together and input into Schedule 8812.
Ryan pointed out in our discussion that this is fairly typical of how tax policy is done. It is created by highly educated, upper middle class professionals with simple and stable income streams. It’s a good idea in theory, but that theory has to reach down into implementation and be able to butt heads with the messy family, income, and custodial situations that many people confront. The path from policy theory to implementation generates a bevy of complex and cumbersome forms and rules which ultimately leads to more chaos than benefit.
The IRS is a mess right now. It seems likely that many millions of families will be getting some form of discrepancy letter this year over what should be a straightforward part of their tax return. The most valuable advice Ryan had was to respond to any IRS correspondence in a clean and clearly recorded way, sending letters via certified mail and faxing a dozen copies to the IRS.
That’s the best way to protect yourself in the chaos that is currently overwhelming the IRS. Make sure you read Ryan’s WSJ piece to prepare yourself for what we’ll be seeing this time next year.
Disney Shorts: The Art of Self-Defense
This is another narration-heavy Goofy short that starts out recounting the history of dueling and fisticuffs, from the days of the caveman to the dawn of the 20th century. We then join Goofy at the boxing gym where he prepares for a fight, inevitably messing up every training exercise, ultimately losing a humiliating match against his own shadow.
This is a fairly unremarkable Goofy short. Outside of the history jokes, there are a few decent physical gags along with several unimaginative ones. It’s cute and reasonably fun, but nothing exceptional.
Marginally Compelling Podcast: Ryan Ellis and the IRS Apocalypse