IRS Faces Busiest Season Under New Tax Law With a Mostly Furloughed Workforce

“Due to the lapse in appropriations, most IRS operations are closed,” reads the emergency notice to employees on the website of the Internal Revenue Service.

With only about 9,946 (12.5 percent) of the agency’s 80,000 employees on the job, according to its contingency plan finalized in late November, the tax agency is facing its busiest season in the first year under the major tax cut law President Trump signed last year.

Prospects for maintaining quality of its work are mixed, according to outside agency observers interviewed this week by Government Executive.

Because of pre-planning and funding from special sources, many operations are continuing, the contingency plan notes. For example, “The government funds Social Security payments out of an indefinite appropriation, and therefore may continue making these payments during a shutdown,” it notes. Similarly, the IRS has an agreement with the Small Business Administration to provide expedited tax return account transcripts to disaster victims applying for disaster loans,” continuation of which is a legislative mandate.

Most significant for the tax year 2018 filing season about to unfold, the agency last year established an implementation office for the Tax Cuts and Jobs Act called the TRIO. “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,” many of which were produced during 2018 with funds from the Treasury Department available until Sept. 30, 2019, the guidance notes. “The Chief Information Officer is also on track to complete the necessary information technology programming to enable all revised and new forms to be accurately processed in the 2019 filing season.”

But inquires at the press office went unanswered, and a call to the IRS taxpayer assistance line on Friday drew a voicemail saying, “Live taxpayer assistance is not available at this time. Normal operations will resume as soon as possible.”

On Friday, newly sworn-in House Ways and Means Committee Chairman Richard Neal, D-Mass., sent a letter to Treasury Secretary Steven Mnuchin demanding an assessment of the situation on such issues as when filing season starts and when refunds will be going out. But even the best-laid plans can wither if the partial government shutdown, now in its third week, trundles on.

And on Monday came a controversial announcement by White House acting Budget Director Russell Vought, telling reporters that regardless of the appropriations lapse, the IRS will be summoning back some employees, unpaid, to allow tax refunds for tax season 2018 to go out this month even without a solution to the shutdown.

That statement, as noted by Politico, contradicted past practice during shutdowns as well as a statement made earlier on Monday by an unnamed senior administration official saying that no decision would be made on the refund schedule until Wednesday or Thursday.

“My sources tell me that, despite the shutdown, the IRS is ready and prepared for the 2019 tax filing season because of enormous efforts by the entire IRS organization throughout 2018 to get ready,” said former Internal Revenue Commissioner Lawrence Gibbs, now senior counsel to Miller & Chevalier. “That said, one always worries whenever enough seasonal IRS telephone tax assistors have been hired and adequately trained to handle the inevitable demand of taxpayers and their advisors who will be seeking to comply with the 2017 changes and new requirements.”

With the new law, there is increased risk that taxpayers who over- or under-withheld in exemptions from their paychecks “may not receive the amount of refund they are expecting,” Gibbs added. “Clearly the slow-down in the issuance of new regulations and guidance due to the government shutdown’s impact on the Office of Tax Policy at Treasury and within [the Office of Information and Regulatory Affairs at the Office of Management and Budget] will have an adverse effect on the timeliness of tax guidance to a number of taxpayers and advisers.”

Key Leadership Vacancy

Also hurting the agency in dealing with tax professionals is the failure of the Senate to confirm President Trump’s nominee for the important position of IRS chief counsel, Mike Desmond, announced in March. This is “clearly political malfeasance and ineptitude,” Gibbs said, “on the parts of political leaders in both parties who appear to be more concerned with their own political interests and games than with the interests of the American taxpayers and their advisers who the politicians are supposed to serve.”

Former Commissioner John Koskinen said via email that he knows the IRS staff “will be focused on starting more or less on time, since shrinking the filing season (you can't extend it beyond April 15 without legislation) runs the risk at some point of overwhelming the system.”

He believes “the appropriate people” are working on forms and documents, as well as the cyber-security teams “since protecting government revenues by ensuring that they are received is allowed as an exception to the prohibition against spending funds you don't have,” he said.

And “to the extent that the leadership discovers that additional employees need to return to work, they have the authority to make that happen as long as it relates to the protection of life or property, including government revenues,” Koskinen added.

Mark Mazur, the former assistant Treasury secretary for tax policy and now director of the Urban-Brookings Tax Policy Center, said, “Obviously, this is a hiccup in the IRS’s plans. Tax year 2018 is the first year for most provisions of the new tax law to take effect. But there’s no date set yet for filing season to begin,” which means the shutdown actually helps individual taxpayers a bit, he added. “It’s one more degree of flexibility, but it will take a little time to see how this plays out.”

David Tolleth, a tax professional and enrolled agent practicing in Holmdel, N.J., said his contacts say “the IRS is fully set up to receive money—they have people opening the envelopes and making check deposits, and the online payments systems are working.”

What is not up and running is the process of sending out refunds, he said. And anyone in his field “preparing a power of attorney to help a client who’s got a collections deadline in response to notices in place has no one on the other wide to correspond with.” One client involved with an audit had a due date of Jan. 3 for delivering documents, but the auditors weren’t there. “You don’t want to just mail over the documents, you want to go in person and meet” with the auditors, Tolleth added. So he advises them to send a certified letter so the agency knows they met the deadline.

“My understanding is that the folks preparing the forms and writing IRS publications are all still there, as are the programmers for IT systems, he said.

Even with no date for filing season to begin, the “scuttlebutt” says Jan. 29, Tolleth said. The IRS will be ready for e-filed returns, as will the tax preparation software companies. But in preparing staff to handle the phone inquiries, almost no training is happening, he said. “Depending on what happens,” the shutdown “could be disruptive.”

This story has been updated to reflect a White House announcement on Monday concerning the schedule for tax refunds.

Image via Andrew F. Kazmierski/Shutterstock.com.