Thousands of employees would keep working at the IRS during a government shutdown, but the agency would be limited in its ability to fulfill many of its core day-to-day functions.
The Internal Revenue Service would be able to continue implementing the 2017 tax law and preparing for the upcoming tax filing season. But work on things like audits and taxpayer assistance would stop.
The partial government shutdown would hit the IRS if Congress doesn’t act Dec. 21 because the Treasury Department is one of the agencies not covered by an already enacted funding law.
If the government does shut down, the IRS would furlough 87.5 percent of its staff, according to a contingency plan outlining how the agency would operate in the event of a December funding lapse.
A shutdown would hit the IRS at an unfavorable moment. On the heels of the 2017 tax overhaul, the agency is ramping up operations for the 2019 filing season while continuing to issue critical tax guidance on new code provisions.
Tax Season Prep
The IRS didn’t respond to a request for comment on its shutdown preparations, but it has maintained that it is on track for a typical late-January, early-February start to the filing season.
Even if the agency shuts down as Congress negotiates a government funding deal, it still will have “critical staff” to complete tasks required to launch the filing season, IRS Wage and Investment division commissioner Ken Corbin said on a recent call with reporters, according to Bloomberg News.
The IRS would keep more than 3,000 information technology employees working during a shutdown. Many of them would continue the behind-the-scenes IT work the agency does in advance of tax filing season.
Tax Law Implementation
The IRS also would be able to keep many employees working thanks to funding included in the 2017 tax law, also known as the Tax Cuts and Jobs Act (Pub. L. No. 115-97). That law provided the Treasury Department with implementation funding that will be available until the end of fiscal year 2019.
“Given its extensive reach and broad scope, implementing the TCJA is a mission-critical task beginning in calendar year 2018 and through fiscal year 2019,” the IRS said in its plan. “Implementation requires creating or revising hundreds of tax products including worksheets and tax forms, form instructions and publications as well as changes to current IRS policies and procedures.”
In the past week, the IRS and Treasury have released proposed rules on treatment of foreign income from the sale of U.S. partnership interests, measures to address aggressive global tax planning, and a notification on new partnership audit procedures.
Practitioners and companies are expecting more guidance to be released either later this month or early next year.
The awaited guidance—ranging from proposed rules on the new foreign-derived intangible income deduction in tax code Section 250, additional regulations on the new opportunity zone tax break, and final rules on the full expensing provision in tax code Section 168(k)—will offer clarity and certainty for businesses to move forward on tax planning.
No Help for Taxpayers
The IRS would keep working on its high-profile projects, but with about 70,000 employees unable to work during a shutdown, many day-to-day activities would stop.
Those include the issuance of refunds, tax audit functions, and taxpayer services, including responding to taxpayer questions at call sites.
Agency employees are concerned about taxpayers facing longer wait times on the phones and not being able to get accurate information, National Treasury Employees Union President Tony Reardon told Bloomberg Tax in an email. The NTEU represents the IRS and many other departments and agencies.
A shutdown would also cancel appointments taxpayers might have booked at already “severely understaffed” taxpayer assistance centers, Reardon said.
A potential shutdown could hurt taxpayers that are served levies from IRS collection staff, Robert McKenzie, a partner at Saul Ewing Arnstein & Lehr LLP in Chicago, told Bloomberg Tax.
When a levy is placed on a bank account, the levy provides for banks to not forward the funds for 21 days, McKenzie said. During that period, taxpayers could work out a deal and secure a release on the levy.
However, if an extended shutdown takes place, there may be no employees available to answer phones and grant taxpayers a release on a levy, he said.
“Who can prevent that harm if the IRS is closed?” McKenzie said.
—With assistance from Siri Bulusu.