The IRS’s decision to process tax refunds during a partial government shutdown would require the IRS to call employees back to work without pay and raise the possibility of more shutdown-related lawsuits against the Trump administration.
The decision helps head off potential political pressure on Congress and President Donald Trump to end the shutdown if taxpayers weren’t able to receive their refunds once tax filing season starts in late January. But the announcement also raises a legal question because it contradicts past OMB statements saying the agency couldn’t issue refunds during a shutdown, tax practitioners said.
Their argument is rooted in the Antideficiency Act, a law that prohibits government agencies from spending money beyond what Congress has already given them. The Treasury Department in 2011 argued that it could process tax refunds during a funding lapse, but the White House budget office overruled that position.
“It appears some ‘legal mind’ in the White House/IRS has reinterpreted the law,” Karen L. Hawkins, former director of the Office of Professional Responsibility for the IRS, told Bloomberg Tax in a Jan. 8 email. “That seems to be happening a lot in this administration.”
The IRS didn’t return a request for comment, but the White House budget office said it finds no issue with moving forward with the refunds.
“Consistent with the Administration’s intent of making this lapse as painless as possible, OMB informed Treasury today that consistent with Treasury’s 2011 position they can in fact process tax refunds during a lapse,” a senior administration official at OMB said in a statement provided to Bloomberg Tax.
Unpaid Workers to Return
The administration could face lawsuits over its decision to issue tax refunds, said Daniel Hemel, a tax law professor at the University of Chicago.
“IRS employees who are required to work without pay might challenge the decision to process refunds,” Hemel said.
Nearly 70,000 Internal Revenue Service employees—about 87.5 percent of the agency’s workforce—were furloughed after the December funding lapse. A “significant portion” of the IRS workforce will be recalled to work for filing season, the IRS said in a Jan. 7 statement.
Those employees will be forced to work without pay, Tony Reardon, president of the National Treasury Employees Union, said in a Jan. 7 statement. The NTEU represents the IRS as well as other agencies and departments.
“Employees who provide that service should be compensated on their regular pay day, as required by law,” Reardon said.
The shutdown has already triggered some litigation against the Trump administration: the American Federation of Government Employees, a major labor union, filed a lawsuit alleging the government is illegally forcing employees to work without pay.
More lawsuits could be on the way: hundreds of thousands of federal workers are set to miss their first paycheck this week.
Despite the issue of its legality, it is unlikely the IRS’s decision to issue refunds will be challenged by taxpayers, said Frank Agostino, founder and president of Agostino & Associates PC in Hackensack, N.J.
Even if someone does sue, the likelihood that it succeeds is unlikely, Agostino said.
“One could argue that the minute the return is filed, the money becomes the taxpayers’ money,” Agostino said. “By the time the lawsuit is filed, this issue would be moot.”
—With assistance from Lydia O’Neal
To read more from Daily Tax Report ® pleaseOR Request Trial