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Government shutdown could delay 2019 tax filing season, with refunds affected if it's a long closure

This post was updated Saturday, Dec. 22, as the federal government was partially closed when Donald J. Trump rejected any funding measure that doesn't have $5 billion for a U.S.-Mexico border wall.

Shut Happen sign by Alan Cleaver via Flickr
Photo by Alan Cleaver via Flickr CC

We're now into the third government shutdown of 2018. Even though only some federal offices are affected, the Internal Revenue Service is among them.

And if the closure is a long one, it could shake the Internal Revenue Service's initial confidence that the coming tax season won't be affected.

A couple of weeks ago when it looked like Congress and the White House would agree to at least another continuing resolution before exiting Washington, D.C., for holidays at home, IRS officials said they were planning on the coming tax season to start on time.

In recent years, that's been toward the end of January, with Free File accepting electronic returns a bit earlier.

However, tax agency executives aren't yet saying exactly when that time will be.

And with the government shutdown now in place and already reducing the jobs that the IRS is allowed to do, the IRS timetable could slip.

Pre-shutdown planning: When the potential disruption of about a quarter of federal government agencies that have not yet been funded for fiscal year 2019 on the horizon, the IRS was working to get as much done as possible.

Just how a shutdown would affect the IRS, which is among those operations still awaiting full funding, came up during a media teleconference earlier this month that the agency held to discuss its efforts to combat tax identity theft.

At the time of the call, the IRS was not worried.

The tax agency will be able to bring back necessary staff to complete the programming and testing of return processing systems, according to IRS Wage and Investment Division Commissioner Ken Corbin.

Other staffers deemed critical also will be on the job to plan for the upcoming filing season, he added.

However, the National Treasury Employees Union (NTEU), which represents IRS personnel, is not so sure.

"Thousands of IRS employees whose job it is to assist taxpayers — on the phone or in person — are in the process of being trained about the massive changes to the tax code," Reardon told Federal News Network. "That training is likely to be interrupted by a shutdown."

If that training is interrupted by a shutdown, the filing season likely will start later than usual. That was the case in 2014, after the IRS and other federal agencies endured a 16-day closure in October 2013.

The Treasury Inspector General for Tax Administration (TIGTA ) expressed similar concerns about a delayed tax season due to tax-reform training needs in a report issued in September. And that was before any shutdown worries.

2019 filing season will be "on time": While Corbin maintained that the 2019 filing season would not be impacted, he was not so definitive as to exactly when the IRS would be ready next year to start processing 2018 tax year returns.

He simply said that it would be "on time."

This year's filing season opened on Jan. 29, with taxpayers who used Free File getting a few days' head start.

Fewer workers to prepare for tax season: The key to the official start of the 2019 filing season, whenever that might be, is getting the IRS computer systems and forms updated to meet the Tax Cuts and Jobs Act (TCJA) changes.

The IRS anticipates that even if there is a shutdown, it will be able to call in enough workers to keep the 2019 filing season on track.

That means the burden will fall on a relative handful of IRS employees, since most of the tax agency's workers will not be on the job after next week if a fiscal 2019 funding solution is not found by Dec. 21.

Without operating money, either via another temporary funding bill or one through the rest of fiscal 2019, nearly 90 percent of the IRS' nearly 80,000-member workforce would be furloughed.

Shutdown contingency plan in place: The Treasury Department saw this possibility coming. It issued its updated shutdown contingency plan on Nov. 29.

The latest IRS shutdown guidelines spell out the department's temporary plan through the end of the year if funding lapses. It notes:

If the IRS is confronted by a lapse in appropriations at any time outside of the filing season (January 1 - April 30, 2019) in fiscal year 2019, activities in preparation for the Tax Filing Season will continue, along with certain other activities authorized under the Anti-Deficiency Act. In the event the lapse extends beyond five (5) business days, the Deputy Commissioner for Operations Support will direct the IRS Human Capital Officer to reassess ongoing activities and identify necessary adjustments of excepted positions and personnel.

The Anti-Deficiency Act noted in the Treasury contingency plan sets out which federal government activities can continue even when Uncle Sam officially shuts down. These excepted government operations include "activities necessary for protection of life and property."

A fraction of excepted IRS employees: That staffing designation typically covers FBI agents, prison correctional officers and Homeland Security employees such as TSA and Customs and Border security staff.

But since the IRS is responsible for the collection of the revenue the United States needs to operate, some agency jobs fall into this essential "protection of life or property" employee category.

That means that during the December non-filing season, the total number of excepted IRS employees — that's staff it needs to continue key IRS work — remaining on the job would be 9,946. That's just 12.5 percent of the agency's 79,868 employees.

If a shutdown continues into the new year, more IRS employees likely would be deemed essential to get the 2019 filing going.

Furlough wide-ranging effects: The possibility of IRS staff reductions during the main filing season (if a shutdown lasts for a while) adds a new dimension to the shutdown equation.

IRS and other furloughed federal workers obviously would take the immediate hit. Congress usually authorizes back pay for federal employees once a funding deal is struck. But if a shutdown drags out, those employees could face financial uncertainty.

The reduction in staff also will mean service cuts for the rest of us.

During the last shutdowns, taxpayer telephone services were halted.

Only electronically filed, not old-school pen and paper returns, were processed.

Rulings and regulations were put on hold.

Most audit functions were halted.

And, yes, it's likely that refunds also could be adversely affected.

Refund delay worries: During the last lengthy shutdown — that previously mentioned October 2013 closure — the IRS did not issue any refunds due to filers who submitted their returns in the extension period.

Could a similar delay happen even during main filing season? Yes.

Treasury's latest contingency document lists the issuing of refunds as part of its non-excepted activities, meaning getting those checks out to taxpayers is not a must-do IRS job during a shutdown.

But maybe that's a good thing. Stop yelling at your screen and composing an angry email to send me. Here's my thinking.

If a shutdown ends up delaying refunds, that situation could provide more incentive for members of Congress to get the funding job done ASAP. Getting the IRS and other agencies up and fully running will be the only way they'll spare themselves angry calls from unhappy constituents who depend on their annual cash back from the IRS.

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