With the holidays over and the shutdown in its third week, taxpayers will feel the impact of the shutdown more directly. For the IRS as an agency affected by the shutdown, only 12.5 percent of its personnel will continue to work. Consequently, the IRS will provide limited services to taxpayers with many services unavailable due to furloughed personnel.
For purposes of the shutdown, government personnel are delineated into four categories. Category A are those workers authorized by law and funded based on advanced appropriations. Category B are those workers necessary for the safety of human life and protection of government property. Category C are workers necessary for the transition to shutdown status. Category D are non-excepted activities for which workers will be furloughed. For the IRS, this means that only 9,946 of its workforce of 79,868 will continue to work, about 12.5 percent of IRS personnel.
Certain activities are excepted from the shutdown such IRS assistance to FEMA for disaster assistance and emergency relief. Services performed by the IRS that are necessary for the Social Security Administration to carry out certain functions will continue despite a lapse in appropriations. Importantly, Congress has already made an appropriation to the IRS for implementation of the Tax Cuts and Jobs Act (TCJA). Some implementation activities of the TCJA would not be affected by a lapse in general IRS appropriations including work on revised tax forms and certain administrative guidance.
During the shutdown the IRS will provide limited services, but with many personnel furloughed many services will not be available. Essential employees, as designated by the IRS, will continue to work through the shutdown and certain essential services will be provided. Among services that will still be provided:
- Processing of paper returns through “batching,” a system of identifying returns that will be processed
- Processing of payments and remittances
- Protection of expiring statute of limitations, bankruptcy, liens and seizure cases
- Design and printing of upcoming tax forms
- Continuation of criminal law enforcement operations
However, many routine IRS activities will be suspended during the shutdown. Among the activities that the IRS will not perform during the shutdown are:
- Service Center processing of returns after the point of batching
- Processing transcripts, except in disaster relief areas or exceptions pursuant to requests from prospective financial lenders
- Processing 1040X amended returns
- All audit functions, examination of returns and processing of non-electronic tax returns that do not include remittances
- Non-automated collections
- Taxpayer services such as responding to taxpayer questions (call sites)
On Jan. 4, the IRS announced that it will reopen the income verification express service, which allows financial institutions to verify income of mortgage and loan applicants. The IRS indicated that it will, “take time to ramp up this service,” and will be dealing with the backlog of requests piling up since Dec. 22, 2018. Also, the IRS announced that beginning on Jan. 8, the Service will accept modernized e-file business tax returns. In response to a Congressional inquiry, the IRS indicated that it will come out with a contingency plan for the filing season in the coming days.
On Jan. 7, the the IRS confirmed that the Office of Management and Budget determined that the IRS could issue refunds despite the shutdown. Prior to this OMB determination, the position of the IRS was that refunds would not be issued during the shutdown, although tax payments would continue to be processed. The OMB determination allowing refunds is a significant change in policy and it is anticipated that the IRS will issue revised procedures for refunds.
It is unclear how long the shutdown will last. Once appropriations are passed and signed into law, IRS personnel will report to work no later than four hours after notification if it occurs on a weekday or the next regularly scheduled business day. RSM will monitor the situation and provide timely alerts on the status of taxpayer services.