Government Shutdown Could Raise Tax Refund Revolt

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By Sean J. Brennan, CPA | Brennan and Company CPA PC

 

The federal government shutdown has been ongoing for several weeks and is now the longest in U.S. history. President Donald Trump stated recently the shutdown could last months or “even a year”.   

Contrary to what some are saying, the IRS is open, albeit with a severely scaled back work force.  IRS is prepared for the current season and has said it will bring back additional resources once tax filing commences.

The IRS previously released a contingency plan: FY 2019 Lapsed Appropriations Contingency Plan [https://home.treasury.gov/lapse-in-appropriations-contingency-plans]. The plan, (which is already obsolete since it only accounted for the first five days of the shutdown), provides some shutdown impact guidance.   It does note that the following areas will be impacted:

  • 1040X processing
  • Audits

Furthermore, the IRS will be focusing on current year processing only, and nothing outside of the current tax season can be addressed.   So, the processing of those prior year IRS CP- notices will wait. It remains to be seen what other services, such as Practitioner Priority Service “PPS” or Tax Payer Advocate “TAS”, will eventually be impacted.

The IRS just announced that it would resume one tax-payer service.  The income verification program called Income Verification Express Service, or IVES, which was suspended when the partial government shutdown began more than three weeks ago, was re-instated late last week after intense mortgage-industry lobbying.

This service, which provides tax transcripts for mortgage applicants, is critical in processing loan applications for people who are self-employed since their taxes aren’t backed up by pay stubs or a W-2 wage report.

Although an important program for many prospective home buyers, many questioned the preferential treatment for the mortgage industry, when so many rank and file IRS employees remain out of work – and unpaid.

The start of tax season is looming and remains, as of the date of this article, set for January 28, 2019.  While electronic tax filing will commence as of the 28th, there are many different opinions as to how well this filing season will proceed.

We should caution our clients to expect delays and even some glitches while we await resolution.  A little patience and increased client communication can help alleviate the anxiety that these unknowns produce.

Political will among the two parties appears strong now, in mid-January, when politicians can safely make claims of a lengthy and principled government shutdown. But once we close in on the start date of tax season, and it becomes clearer that tax return processing will be hindered and thousands or millions of tax refunds are significantly or indefinitely delayed, then the chorus of “Where’s my refund” will grow extremely loud … too loud to ignore.

At that point, political will…may become a political albatross.

BIO:

Sean J. Brennan, CPA, is president of Brennan and Company CPA PC in Philadelphia, and is Chair of the PICPA Federal Taxation Committee.