Hamill: Tax refund hype meets a strained IRS

The Trump administration has attempted to create some excitement for the coming tax season by talking up potential large tax refunds.

The recent extension of the tax cuts will not itself generate larger refunds. For the most part, the bill simply continues existing law.

What might create larger refunds is the new exclusions for certain tips and overtime income. In addition, a new deduction is available to seniors.

The IRS has created a new Schedule 1-A to report the exclusions for tip and overtime pay and the new senior tax deduction.

This schedule also requests information related to the new deduction for interest on a qualifying car loan, including the car’s VIN.

The IRS has also revamped the basic 1040 form to include additional reporting related to the new tax act.

More information is now required for dependents, including whether the dependent resided in the U.S. for more than six months in 2025.

The same six-month question is asked of the taxpayer and, if filing jointly, the spouse.

One change I do like is the new box to check if the taxpayer made a qualified charitable deduction (QCD) from an IRA.

In past years, the QCD was designated only by writing in — or printing from software — the QCD acronym.

I have periodically had clients contacted by an IRS letter saying that they underreported IRA income. The IRS simply ignored the QCD write-in designation.

The Treasury Department previously said it was prioritizing updating forms and instructions related to the new law.

Good job, Treasury. In other news, the Treasury Inspector General for Tax Administration (TIGTA) warns that this may be a shaky tax season.

In September, TIGTA warned that a 25 % reduction in total IRS employees, with seven IRS commissioners in 2025, could be a problem.

In particular, TIGTA was concerned about a 19% decrease in the number of workers responsible for processing taxpayer submissions to the IRS.

One might argue that workforce reductions are not unusual in the private sector and that advances in technology could compensate for a loss of workers.

However, TIGTA also bemoans delays in planned computer modernization plans caused by a loss of resources to the IRS.

With a new tax bill to deal with, fewer workers, and outdated technology, TIGTA cautions “…. the 2026 tax filing season (is) at risk.”

TIGTA also warns that an 18% reduction in workers responsible for return integrity could lead to many fraudulent refunds being issued.

When my wife was an undergraduate at the University of Arizona, she rode in a charity bike race from Tucson to Phoenix, a 120-mile trip.

When she arrived in Phoenix, where she grew up and her family still lived, her father looked at her bike in amazement.

She made the ride with a very heavy bike lock and chain attached to the frame. Her dad wondered: Was she deliberately trying to sabotage her race success?

There is no widespread assault on government funding of agencies and departments. There have instead been funding winners and losers.

The IRS is a loser by any measure. There is not even the hint of an argument that the development and deployment of AI will allow workers to be replaced.

There will be fewer enforcement personnel to initiate and conduct audits. This may be a deliberate sabotage effort that one could explain.

The loss of enforcement personnel will allow for more aggressive tax reporting. Defenders of this approach argue that it will reduce unfair IRS assaults on freedoms.

I don’t accept this argument. I can respect it if it comes honestly and not as a subterfuge to fudge on taxes.

But I just don’t get the reductions in return processing and workers handling customer service.

The United States Postal Service has faced political attacks that some say are backed, and even led, by private carriers.

USPS is self-funded but regulated by a board of governors. USPS is required to prefund retiree health benefits in a manner not mandated by private carriers.

Some have argued that this requirement is a deliberate effort to undermine USPS and force the privatization of mail and package delivery.

If fewer return processing personnel causes a messy tax season, might it be part of a deliberate effort to sabotage the IRS to force changes to tax administration?

You’re a conspiracy nut, you say. Perhaps. But it seems like the IRS is heading off on a 120-mile race weighted down by an anchor. What’s the non-conspiracy explanation?

Jim Hamill is the director of tax practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at jimhamill@rhcocpa.com.