Government Shutdown and the IRS

On January 13, 2019, the partial government shutdown moved into its 23rd day, making it the longest such event to date and, at present, there is no proposed deal to bring it to an end.  In that the IRS is one of the affected agencies, what impact will this have on payment deadlines, filing deadlines and the processing of tax returns (and the related refunds) going into the future?

To explore this subject, I will use a question and answer format.

Why is it called a “partial” shutdown? 

Departments that already have had their 2018/2019 appropriations approved are not affected by the shutdown.  These Departments include Defense, Energy, Health and Human Services, Veteran Affairs, Labor and Education.  Treasury, which includes the IRS, is one of the Departments that has not had its 2018/2019 appropriation approved. 

So, is the IRS completely shut down?

No, however they have furloughed approximately 70,000 (88%) of their workforce.  Approximately 10,000 continue to work as “excepted/exempt” employees.  The vast majority of these working employees are not currently being paid.  The specific positions and functions of these working employees is laid out in the IRS’s 110 page Fiscal Year 2019 LAPSED APPROPRIATIONS CONTINGENCY PLAN (Non-filing season-December 8-31, 2018).

Employees who are required to continue working do so under two broad categories:

  • Activities Otherwise Authorized by Law
  • Activities Necessary to Safeguard Human Life or Protect Government Property

What happens now that we have moved into the “Filing Season”?

The IRS has announced that it will start processing 2018 tax returns on January 28, 2019 and that this will include the payment of refunds.  To accomplish this, the IRS will recall “a significant portion” of the furloughed workers for the filing season.  The IRS expects to issue an updated contingency plan in the near future. 

The previously cited Contingency Plan states:

“Relevant authority has established that tax revenues constitute Government property which the Service must safeguard during a lapse in appropriations… Accordingly, during a lapse in appropriations, the Service may continue processing tax returns to ensure the protection of those returns that contain remittances.” 

The IRS has further stated that it believes it has the authority to process tax returns and issue refunds under 31 U.S.C Section 1324. 

The IRS has not issued any guidance that delays payment or filing deadlines.

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017 and first effective in 2018, represents the most comprehensive change to the Tax Code since 1986.  Will the shutdown hinder the IRS’s ability to implement the necessary changes to forms, instructions, policies, processing and so forth?

In enacting the TCJA, Congress provided the Treasury Department (and the IRS) with the necessary funds to implement the TCJA through an appropriation that goes through September 30, 2019.  Accordingly, the partial government shutdown should not have affected this task. 

All tax practitioners thought this filing season would be a challenge, even under the best of circumstances.  While the partial government shutdown will present us with a more challenging environment, everyone should be prepared to pay all taxes and file all returns in a timely manner.   

On a related matter, US Rep John R Curtis (R. Utah) has proposed a bill H.R. 26 No Work, No Pay Act of 2019, which would prohibit the pay of Members of Congress during a government shutdown.  I am somewhat pessimistic on its chances of passage.