Government Shutdown Could Disrupt Upcoming Tax Season, IRS Commissioner Says

KEY POINTS

• Lawmakers are racing to avert a government shutdown, which could affect the upcoming tax season, IRS Commissioner Danny Werfel said last week.
• By law, the agency can preserve certain activities for ongoing operations after a lapse in funding.
• But it’s unclear exactly which areas of taxpayer service would be affected, experts say.

As Americans prepare for the opening of tax season, lawmakers are racing to avert a government shutdown. If they fail to come to an agreement, the resulting pause in nonessential operations could affect taxpayers’ filing experience, according to IRS Commissioner Danny Werfel.

By law, the agency can preserve certain activities for ongoing operations after a lapse in funding, Werfel told reporters last week. But “shutdowns are highly disruptive,” he said, noting it could “increase the risk that we don’t have as smooth a filing season as we intend to have.”

Congress faces two looming deadlines, Jan. 19 and Feb. 2, to finalize a deal or pass a short-term funding measure. It’s the second deadline that affects the IRS.

While lawmakers have taken steps to extend both deadlines to early March, the new dates would still leave limited working days to reach a deal.

“We experienced shutdowns before,” Werfel said. “We have not experienced a shutdown in the middle of filing season, so there’s some uncertainty there.”

“Of course, we will do everything in our power to minimize the disruptions that a shutdown would have on the filing season,” he added.

Some tax preparers have already begun accepting 2023 returns, but the season officially kicks off on Jan. 29 when the IRS starts processing filings.

What may happen at the IRS during a shutdown

While certain IRS functions would continue under a federal government shutdown, it’s unclear exactly which employees would keep working, experts say.

The U.S. Department of the Treasury in September released a lapsed appropriations contingency plan for fiscal 2024, covering critical operations for the IRS.

However, the American Institute of CPAs in November sent a letter to Treasury Secretary Janet Yellen and Commissioner Werfel, asking for plan updates with “filing season-specific activities.”

“There’s not a lot of winners if the IRS shuts down and has to go to their contingency plan,” said Kasey Pittman, tax policy director with Baker Tilly’s Washington tax council.

The AICPA’s letter expressed concerns about phone service, taxpayer assistance centers, possible refund delays, paper correspondence and automated notices, pointing to an interpretation of the contingency plan from the National Taxpayer Advocate.

Shutdown could affect IRS priorities

If lawmakers don’t finalize a deal, or pass a short-term funding measure, it could threaten the agency’s progress on past issues and new initiatives, according to Mark Everson, a former IRS commissioner and current vice chairman at alliantgroup.