Shutdown Brings Chaos To The IRS And May Delay Refunds


Friday, January 4th 2019, 4:08 pm
By: News 9


Americans are used to procrastinating when it comes to filing their taxes. This year, tax season is expected to see an even bigger delay—thanks to the government shutdown. 

The Internal Revenue Service is one of the many agencies shut down since Dec. 22. Only 12 percent of its staff are working (without pay), mostly focused on security and technology. The agency is not issuing refunds, updating tax forms or answering phone help lines, according to its shutdown plans.

That's making tax professionals fret as they anticipate a shorter window in which to file. That's on top of an already complicated tax season, due to the myriad of new regulations ushered in by 2017's sweeping tax reform bill, the Tax Cuts and Jobs Act. 

"When I look in my tax software, which is professional tax software, there are many forms that haven't been finalized," said Steven Zelin, a CPA based in Manhattan. "We can't file. And since the tax law changed so much there's a likelihood that there's maybe a delay" in starting the filing season, he added.

But those hoping that an IRS shutdown means a breather on their taxes will be disappointed. The agency's website says taxpayers "should file and pay their taxes as normal."

The problem is, there's not really a "normal" for this time period, which comes at the end of the IRS's yearly closure as well as the tax code overhaul.

The IRS typically shuts down from November through the end of the year to update its systems with annual tax changes, according to tax professionals. That includes many tax forms, which make the basis of calculations done by tax software, both professional software and programs used by consumers.

In the last two years, the IRS has announced on Jan. 4 or 5 the date that e-filing season would begin, usually in the second or third week of January. As of Friday, it's unclear when filing season begins. The IRS wasn't immediately available for comment.

"Typically around now, the first couple of weeks [of the year], we would hear something," said Lisa Greene-Lewis, a CPA with TurboTax. Greene-Lewis, and the other tax preparers interviewed for this article, said they had not heard from the IRS before the shutdown to tell them what to do.

Greene-Lewis said that TurboTax's filing systems were ready to go, even though the IRS' weren't. Taxpayers can still file with TurboTax, she said, but the company will simply store their information until the government re-opens, at which point they will transmit it.

"Typically around now, the first couple of weeks [of the year], we would hear something," said Lisa Greene-Lewis, a CPA with TurboTax. Greene-Lewis, and the other tax preparers interviewed for this article, said they had not heard from the IRS before the shutdown to tell them what to do.

Greene-Lewis said that TurboTax's filing systems were ready to go, even though the IRS' weren't. Taxpayers can still file with TurboTax, she said, but the company will simply store their information until the government re-opens, at which point they will transmit it.

IRS won't issue refunds during shutdown

If the shutdown continues into the filing season, the IRS could conceivably call back a larger portion of its workforce, according to a union official. It still won't issue refunds, however. Refunds count as less-than-essential activity, according to the IRS' shutdown plan. (The official terms is non-excepted.)

Far greater challenges face Americans who are in the midst of sorting out tax problems with the IRS, like audits, or those who have questions about tax returns—most likely people who are filing taxes on their own.

Angela Reed, a partner at Tarbell & Co., a CPA firm in Iowa, is trying to help a client who filed some nonprofit tax returns late. But with the IRS unstaffed, she's at a standstill.

"I can't do anything with that, currently. I can't call the IRS and have a discussion," she said.

Reed, whose firm prepares about 4,000 tax returns every year, said she hasn't yet felt a severe impact from the shutdown, but she said she is worried about potential delays in processing tax refunds if the shutdown continues much longer.

Taxpayers who've been counting on a tax refund to pay off credit-card bills from Christmas spending may feel themselves squeezed, in other words. About 102 million tax refunds were issued last year, at a total value of $285 billion, according to eFile, a tax software site.

Even before the shutdown, there were concerns IRS staffers wouldn't be ready in time for the tax season, given the extent of the changes in the 2017 tax law.

"We just had the largest tax reform since 1986, and the IRS is having to do a lot of work to get ready for that," said Tony Reardon, president of the National Treasury Employees Union, which represents workers at the IRS and elsewhere.

"What I've heard from our members is concern that the training they were getting was in some instances outdated, incomplete—and this was before the shutdown," Reardon said. "There's a very real possibility that the tax filing season would have to be delayed."

"I was bracing for this," said Jonathan Medows, a CPA in Manhattan. "I noticed years ago when the IRS makes these changes, [tax software companies] struggle to implement them…. And that's in a good year, when you have just a few tax changes."

There's no precedent for the IRS being shut down so close to tax season, said Mark Mazur, a former tax policy official at the Treasury and current director of the Tax Policy Center. The one that comes closest is the 27-day shutdown of 1995, which stemmed from a conflict between Democratic President Bill Clinton and the Republican-controlled Congress. That shutdown ended on Jan. 6, 1996.

"We're currently in unprecedented territory here," he said.

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