Since the partial government shutdown went into effect at midnight on December 22, 2018, approximately 800,000 government employees, or fifteen percent (15%) of the entire federal workforce, has been affected. While much of the mainstream media has focused on the political gridlock and impacts on the government workers now going without a paycheck, the majority of the government is still up and running thanks to pre-existing bills that funded specific programs prior to the shutdown.
The Treasury Department, however, is one of nine federal departments affected by the shutdown, and has furloughed approximately 88 percent (88%) of its workforce. All IRS employees who were not already-identified excepted employees are now in a non-pay/non-duty status until further notice. Because this shutdown was not entirely unexpected, the Treasury Department issued a Lapsed Appropriations Contingency Plan published November 29, 2018 to cover IRS operations for the Non-Filing Season through December 31, 2018. Unfortunately, the government shutdown has continued far beyond the originally anticipated time period, and the Lapsed Appropriations Contingency Plan has now expired. Additionally, a lapse in appropriations exceeding the five days anticipated by the Lapsed Appropriations Contingency Plan required the IRS Human Capital Officer to do an agency-wide reassessment of what activities would be classified as excepted.
Currently on the “excepted” list are the key players you would expect (IRS Commissioner Charles Rettig, some Deputy Commissioners, National Taxpayer Advocate Nina Olson, and Criminal Investigation employees), along with a handful of Appeals Office staff and Chief Counsel employees who work to comply with statutory deadlines and employees required to keep the IRS website and other essential parts of the IRS functioning. However, no additional information has been released regarding the reassessment moving forward. There are more questions right now than answers.
So now that we’re three days into 2019 and headed squarely into the first filing season under the new 2017 Tax Cuts and Jobs Act changes to the tax code with no end to the shutdown in sight, what does this mean for taxpayers and tax practitioners? For starters, a lot of uncertainty. From a filing perspective, while some returns that include payments will still be processed, other IRS activities such as issuing refunds, and general taxpayer-oriented assistance services are likely to remain suspended. For the significant number of Americans who plan on receiving significant tax refunds as part of their “income” each filing season, this delay may cause substantial headaches, particularly for low-income taxpayers. When the government shutdown in 2013 (an October shutdown that lasted sixteen days), approximately $2.2 billion in taxpayer refunds to individuals were delayed, along with $1.5 billion worth of refunds to business entities. While the IRS has not yet announced when the 2019 filing season will begin, historically that time period has occurred by the end of January.
Outside of the uncertainty related to the 2019 filing season, other IRS activities are also on hold and remain in limbo. Non-Disaster transcripts are unlikely to be processed, audits, examinations, and non-automated collections are likely suspended, and amended returns are unlikely to be processed. Additionally, the suspension of these “non-excepted” activities will impact taxpayers beyond tax-related activities through delays in obtaining loans and refinancing (because processing of non-disaster transcripts is suspended, along with Income Verification processing).
One thing is for certain: the longer the shutdown continues, the larger the backlog of issues requiring IRS attention and assistance will grow. Given the uncertainty already surrounding the 2019 filing season even before the shutdown occurred, all eyes will be on how the IRS plans to handle this filing season in either the wake or midst of the current shutdown.
Kati Sanford Goodner is based in the firm’s Knoxville office. Commercial Litigation and Tax Controversy are Kati’s primary focus, although her experience and practice routinely includes Estate and Trust Litigation, Conservatorships, and advising her small business clients in a variety of matters ranging from formation issues to shareholder disputes and litigation. With an extensive background in litigation, Kati represents taxpayers before the Internal Revenue Service and the Tennessee Department of Revenue in both civil and criminal tax matters, whether in the early stages of an examination, at the collections stage, or seeking relief from IRS liens and levies through the administrative process or in Court. She is adept at handling complex litigation, has represented clients in Tennessee and across the country, and she routinely works with professionals ranging from accountants to highly-specialized physicians and engineers.
Kati is a regular speaker and author on tax-related matters, including legislative changes and practical applications of the tax code for individuals and small businesses. In addition to serving on various boards within the Knoxville, Tennessee, and American Bar Associations, she is a member of the Tennessee Bar Association’s Tax Law Section and the American Bar Association’s Section of Taxation. She also serves as a member of the City of Knoxville’s Better Building Board and enjoys working with middle school girls at Cedar Springs Presbyterian Church.