Damage Calculations

The IRS has announced that it would begin accepting paper and electronic tax returns for the 2018 tax year on January 28, but much remained to be seen about how the shutdown of the federal government would affect the year’s filings. Although the Trump administration had stated that the IRS would pay refunds during the closure — a shift from IRS practice in previous government shutdowns — it was not clear how quickly such refunds would be processed.

Effects of the Shutdown on the IRS

An estimated 800,000 federal government workers were furloughed from December 22, 2018, due to the impasse between President Trump and Congress over funding for a southern border wall. The most recent contingency plan published for the IRS lapsed on December 31, 2018, but it provided that only 12.5% of the tax agency’s approximately 80,000 employees would be deemed essential and therefore continue working during a shutdown.

The furloughs were necessary because the standoff over the border wall had prevented the enactment of several of the appropriations bills that fund the federal government. Tax refunds aren’t paid with appropriated funds, but IRS employees are. In the past, the IRS hasn’t paid tax refunds during shutdowns because it didn’t have the appropriated funds it needed to pay the employees who process refunds. Trump administration attorneys, however, had determined that the agency can issue refunds during a shutdown.

The IRS likely would need far more than 12.5% of its employees on the job to process refunds when it starts accepting filings. In 2018, the IRS received 18.3 million returns and processed 6.1 million refunds in the first week of tax season. By just one week later, it had received 30.8 million returns and issued 13.5 million refunds. Even though the IRS had indicated that it intends to recall “a significant portion of its workforce” to work, it provided few details, and those employees would have to work without pay. The IRS said it would release an updated contingency plan “in the coming days.”

TCJA Complicates the Picture

The implementation of the federal tax overhaul could further complicate matters for taxpayers. The 2018 tax year was the first to be subject to the Tax Cuts and Jobs Act (TCJA), which brought sweeping changes to the tax code, as well as new tax forms. Various TCJA implementation activities, such as the development of new publications and instructions, would continue because they’re funded by earlier appropriations legislation.

During the 2013 government shutdown, taxpayers also couldn’t receive live telephone customer service from the IRS, and walk-in taxpayer assistance centers were shuttered. At that time, the IRS website was available, but some of its interactive features weren’t. Treasury Secretary Steve Mnuchin had stated that the IRS would call back enough employees to work to answer 60% to 70% of phone calls seeking tax assistance during the shutdown, which could lead to widespread taxpayer frustration.

Tax Filing Deadlines Were Still in Effect

Regardless of how IRS operations proceeded, taxpayers still needed to comply with the filing deadlines. Individual taxpayers in every state but Maine and Massachusetts had to file by April 15, 2019; filers in those two states had until April 17, 2019. Individuals who obtained a filing extension had until October 15, 2019, to file their returns, but should have pay the taxes owed by the April deadline to avoid penalties.

If you have questions about tax filing or how the government shutdown affected tax filing, please contact us!


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