IRS Furloughs Could Crimp GOP Tax Law Guidance, Rules Rollout

IRS employees implementing the GOP July tax law are largely exempt from staff furloughs amid the government shutdown, but the shutdown’s impact could still have a ripple effect on the rollout of regulations and guidance to taxpayers.

Just under 40,000 agency staff will remain working as the shutdown drags into its tenth day and lawmakers failed yet again to reach agreement to restart government funding.

The cumulative impact of a nine-month stretch of IRS workforce departures and ongoing threats of cuts to come has taken a toll. Agency ranks have been shrunk to less than 75,000, after starting the year at roughly 100,000 employees. An exodus of senior staff and a rotating cast of commissioners over the past year could contribute to sluggish rulemaking.

“Even with the best efforts and designating people ‘essential,’ there is going to be a natural slowdown on how quickly they can get guidance out,” said Miller and Chevalier’s tax policy practice lead Marc Gerson. “It’s definitely going to have a negative impact on the guidance.”

The latest IRS contingency plan carves out exceptions from the furloughs for those involved in the tax law, information technology, and the filing season. The IRS on Thursday walked back assurances that employees furloughed would get back pay.

Guidance Demands

The IRS chief counsel’s office, comprised of hundreds of attorneys tasked with crafting guidance to implement that tax law, has been without a permanent leader for months. The Treasury Department’s Office of Tax Policy chief, Ken Kies, has been serving as acting IRS chief counsel until the Senate votes to confirm nominee Don Korb.

The demands for new guidance from the mammoth tax law and a shutdown where half the staff won’t be there to help could have consequences, said Gerson, a former House Ways and Means Committee tax counsel.

Taxpayers seeking to give Treasury and IRS officials feedback on new guidance are concerned that they could face delays, Gerson said.

Gerson said he’s also heard concerns from clients interacting with the IRS on matters not related to guidance, such as delays with expected refunds or the processing of returns.

But Josh Odintz, a Holland & Knight partner, said he expects Treasury and the IRS chief counsel’s officeto forge ahead on tax law guidance, given it’s a signature priority for the Trump administration.

“During a normal shutdown, the Treasury and IRS Chief Counsel maintain a skeletal staff and the regulatory process grinds to a halt,” said Odintz, a former Senate Finance Committee and Treasury Department lawyer.

“I anticipate Treasury will continue to work on and release guidance listed on the priority guidance plan, such as no tax on overtime, no tax on tips, qualified production property, and other priorities,” Odintz said.

GOP Eyes Potential Problem

Some Republicans in Congress also worry how the slowdown could affect taxpayers.

Sen. James Lankford (R-Okla.) said there’s been a “dramatic slowdown” in the IRS answering questions from taxpayers.

The Senate Finance Committee member said he wasn’t yet ready to sound alarms on the shutdown’s impact on the rollout of guidance, but said it could become a problem.

“It matters how long this lasts,” Lankford said. “If it’s a couple of days, it won’t set us back. If it’s a couple of weeks, that could set us back a month.”

There’s typically more questions for the IRS when a new tax law passes, and the shutdown will make the agency harder to reach, said Jennifer MacMillan, president of National Association of Enrolled Agents. But her biggest concerns are for taxpayers who file late or who receive IRS notices after submitting their returns.

“If someone’s bank account is supposed to be levied and we’re supposed to call the IRS by a certain date but the government’s closed—is the computer going to levy their bank account?” MacMillan said. “What’s going to happen? It’s a little unnerving.”

Clay Hodges, a director with Baker Tilly National Tax, said many agents conducting examinations have contacted taxpayer representatives to tell them they’re being furloughed and will reach out again once the shutdown ends.

“Examination activity is effectively on pause,” Hodges said by email. “Some customer service representatives remain available and are still answering calls, but they’ve described the situation as ‘day to day’ and are uncertain whether they’ll be working the following day.”

Democrats like Sen. Elizabeth Warren (D-Mass.) say the shutdown has the potential to further erode IRS services to taxpayers, but issues began long before it started because the Trump administration sanded away at the agency through its initiatives to downsize the federal government.

“Collecting taxes is clearly not at the top of the Trump agenda,” Warren said. “They’ve already passed huge budget cuts for the IRS, because they don’t want effective tax collectors going after billionaire tax cheats.”