Millions of taxpayers expect to be ready in January when tax season opens, but will the Internal Revenue Service (IRS) be ready? With a showdown in Washington over border security, there’s no federal budget in place. That means that funding for many government agencies has run out, resulting in a partial shutdown. Among those affected? The IRS.
The shutdown isn’t a surprise, and the Department of Treasury is ready. Last month, the Department created a Lapsed Appropriations Contingency Plan, which details what will happen to the IRS during a government shutdown. The plan describes the actions and activities for the first five business days following a lapse in appropriations – but only through December 31.
The IRS had noted that “[w]hile we do not anticipate using the plan, prudent management requires that agencies prepare for this contingency.” However, without a deal, the government officially ran out of money for the fiscal year resulting in a partial shutdown: not every facet of the government will shut down. For example, the IRS will maintain some functions and those are outlined in their contingency plan. Specifically, the agency notes that “If the IRS is confronted by a lapse in appropriations at any time outside of the filing season (January 1 – April 30, 2019) in fiscal year 2019, activities in preparation for the Tax Filing Season will continue, along with certain other activities authorized under the Anti-Deficiency Act.”
The Anti-Deficiency Act (text here) is a series of laws dating back more than 100 years. The Act is codified at Title 31 (Money and Finance) and is intended to stop federal agencies from spending federal dollars that aren’t authorized, as well barring them from accepting voluntary services (meaning that employees can’t work for free during a shutdown). The penalties for violating the Act are pretty severe, which is why federal agencies provide a written contingency plan.
During a shutdown, agencies are allowed to perform activities that are supported by funding that doesn’t expire at the end of the fiscal year, as well as other activities that are either expressly permitted under the law or are deemed necessary. Sometimes those activities cross over. For example, Social Security payments are funded outside of an annual appropriation, so those employees will continue to work, as well as those IRS employees who support them even though IRS funding is typically not outside of annual appropriation.
The law also allows for “activities necessary to safeguard human life or protect government property.” You might not think of your tax return as a matter of life or death but the government begs to differ: The IRS may process tax returns to ensure the protection of those returns that contain remittances (in other words, they can make sure that the government gets its money).
Here’s a partial list of functions that directly impact taxpayers and would typically be put on hold during a government shutdown:
- No tax refunds issued
- No processing of non-disaster relief transcripts
- No processing of forms 1040X, amended returns
- No non-automated collections
- No audit or examinations (some exceptions apply)
- No legal counsel
- No call center during Non-Filing Season
Here’s a partial list of functions that directly impact taxpayers which will typically continue during a government shutdown:
- Processing of returns with payments
- Processing disaster relief transcripts
- E-filing up to the point of refunds
- Design and printing of tax forms
- Appeals (statutory deadlines will not be changed)
- Certain civil and criminal tax cases (statute expiration, bankruptcy, liens and seizures cases)
- Active criminal investigations
To facilitate those activities, the IRS anticipates that during the non-filing season, 9,946 employees, or 12.5% of the total employee population, would be retained during a shutdown. So who stays on the job?
Top of the list is IRS Commissioner Charles Rettig. The Commissioner is a presidential appointee not subject to furlough (furlough is another way of saying not going to work). The Commissioner’s salary is paid no matter how many hours he works, so he cannot be placed in a non-duty, non-pay status. A handful of Deputy Commissioners and Chiefs of Staff would also remain on staff or on call as needed.
Also on the “excepted employees” list are some appeals staff and lawyers to ensure that statutory deadlines are met. Missing deadlines affects IRS as much as it does taxpayers, and the IRS is assuming that Tax Court, as well as federal and district courts will remain open. If courts do close, or if appeals determines that staff and attorneys aren’t needed, then they would be furloughed. The same general rules apply to the Office of Chief Counsel.
Dozens of employees would stay on with the Taxpayer Advocate Service in some capacity. Specifically, Nina Olson (the National Taxpayer Advocate) will go to work, while 84 employees will remain “on call” as needed during the shutdown.
A significant number of Criminal Investigation (CI) employees – 2,745 – are slated to report to work. This makes sense: If the bad guys don’t take a break, neither should those in pursuit of them. Currently, CI is working nearly 2,962 active criminal investigations with an additional 3,390 investigations in the adjudication phase (pre-indictment, indictment, trial and post-trial) in 93 judicial districts. That means that right now, more than 6,000 investigations are in process on some level: special agents are actively gathering evidence, conducting interviews, testifying in court proceedings, executing search warrants and conducting arrests. CI will operate at close to normal levels since federal courts, federal prosecutors and federal law enforcement partners will likely operate as usual. In some prior years, the shutdown plan proposed that CI attempt to continue work with a reduced staff. It became clear that it was impossible for CI to operate at half-power when the federal courts, federal prosecutors and our federal law enforcement partners continued as normal.
Just under a dozen employees will be needed to keep the IRS.gov website up and running. During the shutdown, taxpayers should still be able to access online services, including filing tax returns and paying tax online. During the 2018 filing season (including extensions), the IRS reported 585,026,836 visits to IRS.gov.
More than 3,000 IT-related workers will stay in place to ensure that taxpayer data is protected and that computer systems function appropriately.
An additional consideration this year is tax reform, or the Tax Cuts and Jobs Act (TCJA). The contingency plan states that “implementing the TCJA is a mission-critical task beginning in calendar year 2018 and through fiscal year 2019.” That includes creating or revising hundreds of tax products including worksheets and tax forms, instructions and publications.
(You can read about the new form 1040 here.)
However, as part of the TCJA, Congress provided the Treasury Department with some funding through September 30, 2019. As a result, certain TCJA-related activities will not be affected by the shutdown.
If the shutdown lasts longer than five business days, the IRS will reassess which functions will be necessary moving ahead; I’ll update you if that happens. The 2019 filing season is still expected to open in January.