Taxpayers have a number of deadlines they have to meet every year. Many of them wait until the last minute to complete their tax returns or file for extensions, facing the danger of costly penalties if they don't get things done in time.

You don't often hear about the IRS needing an extension to get its part of the tax puzzle completed, but that's exactly what could happen this year. The magnitude of changes to the tax laws over the past year has made the Internal Revenue Service's job a lot more complicated this year, and according to a recent report from a government official charged with oversight responsibility for the IRS, the tax agency could have a tough time starting the 2019 tax season on time.

Brick wall with Internal Revenue Service plaque, next to a red traffic light.

Image source: Getty Images.

Why the IRS is having a problem with taxes

In a memorandum to Treasury Secretary Steve Mnuchin, the Inspector General for Tax Administration, J. Russell George, listed out the management and performance challenges facing the IRS for the 2019 fiscal year that began on Oct. 1. Among the highest priority items were concerns about taxpayer data security, identity theft, enabling greater online access for taxpayer services, and upgrading key systems. Many of these issues have been near the top of similar lists for years, reflecting the ongoing need to deal with these problems and the difficulties in finding lasting solutions.

However, a new challenge arose this year. The implementation of the Tax Cuts and Jobs Act late last year, along with many other tax law changes, put a burden on the IRS to make the necessary adaptations and changes to reflect new legal requirements. With tax reform representing the biggest shift in the laws governing taxation since the enactment of the Internal Revenue Code of 1986, the Inspector General explained that massive resources would be necessary to meet taxpayer expectations while still ensuring that the IRS complied with and respected the new laws in their entirety.

Some specific challenges

The Tax Cuts and Jobs Act contained nearly 120 provisions that the IRS is responsible to administer, affecting both domestic and international taxation. The tax agency quickly estimated that implementing tax reform would require creating or revising roughly 450 forms, publications, and sets of instructions. In addition, roughly 140 information technology systems to process tax returns and monitor compliance would require modifications to ensure smooth operation, and the IRS would need to handle roughly 4 million additional telephone calls and other contacts from taxpayers trying to figure out what impact the new tax laws would have on their own individual returns.

The IRS didn't hesitate to react quickly to the challenge. Working with consumer and business groups, the IRS shared as much information about the new tax laws as far in advance as possible, enlisting the help of professionals who deal with payroll handling to make sure that payroll tax withholding practices reflected the new laws.

At the same time, though, the IRS has had to align tax reform with other requirements. For instance, a 2015 law required the IRS to make changes to its taxpayer identification number program to deter fraudulent claims for refunds. However, the agency has faced limitations in its systems that have prevented it from solving the problem entirely. Those limitations have led to persistent fraudulent activity, with the Inspector General reporting almost $10 million in improperly allowed credits that could have been caught had IRS systems been working correctly.

Is a delay coming?

The Inspector General praised early IRS attempts to get things moving in the right direction, but it's still warning that the 2019 tax filing season could get delayed. Historically, returns become available for filing around the third or fourth week of January. Yet with the IRS IT department having already missed some early deadlines, it's possible that there won't be enough time for testing near year-end without putting off the start of tax season. Already, some information that the IRS typically releases, such as tax brackets and annual changes to various thresholds and limits, haven't come out as early as they have in previous years.

Taxpayers need to keep an eye on the IRS to see how the remainder of the year plays out. Unless the tax agency can pick up the pace and move as efficiently as possible, then taxpayers in a hurry to get their returns filed to claim their refunds could have to wait longer than they'd like.

The Motley Fool has a disclosure policy.