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How the Shutdown Affects IRS Operations Going Forward

Despite Upbeat Messaging, IRS “Inundated” with Overdue Tasks from Government Shutdown

“The IRS has reopened following the end of the government shutdown, and IRS employees are working hard to resume normal operations and help taxpayers as much as possible.”

“IRS expects to issue refunds with no delay.”

”We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown,” IRS Commissioner Charles Rettig said in a statement in early January.

These upbeat communications do not give the whole story on the effect of the recent 35-day government shutdown on IRS operations. Refunds are not the only issue. The effects of the shutdown are likely to be felt by taxpayers for a long time, particularly those who face a deficiency, audit, or other adverse IRS actions. Only 12% of IRS employees worked during the shutdown, at the busiest time of the year for the tax agency, while some 36,000 IRS employees were furloughed.

Nina Olson, the National Taxpayer Advocate (NTA), in the Preface to her latest report to Congress, warns that taxpayers’ inability to reach an IRS assistor or receive assistance from the Taxpayer Advocate Service during the government shutdown translates into “taxpayers experiencing real harm.” Here’s her description: “On January 28, when my office reopened, it was clear that the IRS baseline had changed. The five weeks could not have come at a worse time for the IRS—facing its first filing season implementing a massive new tax law, with a completely restructured tax form. …the IRS is entering the filing season inundated with correspondence, phone calls, and inventories of unresolved prior year audits and identity theft cases.”

For example, the NTA notes that levies and liens were not released during the shutdown. Also, the wait times for phone lines the first week all employees returned “is … shocking,” with wait times as high as 90 minutes. Finally, the NTA notes that failure of taxpayers to respond to IRS notices has significant consequences if deadlines are missed. Even if the IRS was not available to receive the responses, taxpayers may face penalties and more serious actions. They now will have to navigate an already overburdened system to get relief from the IRS by proving the delay was not their fault.

IRS FAQs on Shutdown

The IRS posted FAQs on the government shutdown to give taxpayers information on how to handle procedures impacted by the shutdown, such as audits, collections, appeals, and interactions with the U.S. Tax Court. Most of the FAQs simply tell taxpayers that IRS personnel will begin to review mail, voice messages, and their audit and collection files upon their return to work and will be re-establishing contact with taxpayers. “This process will take several business days to complete,” the IRS states. Days? That sounds very ambitious.

The IRS goes on to warn taxpayers that the government shutdown did not affect taxpayers’ filing and payment responsibilities. Failure to pay and failure to file penalties will continue to be assessed. Taxpayers unable to make payments in person can file a request that the penalty be abated for reasonable cause.

For appeals, the IRS assured taxpayers that once Appeals Officers have reviewed mail, voice messages, the status of their assigned inventory and completed administrative tasks to restart operations, they will begin to re-establish contact and schedule hearings. Again, the IRS uses a very optimistic “several business days” as the timeframe.

Tax Court Petitions

Taxpayers with actions pending before the U.S. Tax Court will face major delays. The Court canceled trial sessions around the country set for January 28, February 4, and February 11, but resumed trials set for February 28. The Court will need to make up those trial calendars. Also, the Court’s website notifies taxpayers that mail sent to the Court during the shutdown may have been returned undelivered. If a document was returned, the taxpayer is instructed to re-mail or re-send the document to the Court with a copy of the envelope or container (with the postmark or proof of mailing date) from the first mailing. Unfortunately, however, the IRS is not giving any break for interest that is accruing. Interest will continue to accrue on disputed taxes pending resolution of a delayed Tax Court case.

Going Forward

Because of the complicated situation many taxpayers may find themselves in due to the IRS’s loss of 35 work days, taxpayers should consult their tax advisers to help them obtain hardship waivers and clock resets to avoid the negative consequences of failure to follow IRS procedures. Even though taxpayers are not at fault, they are likely to bear the burden of proof on penalties and lapsed deadlines.

“The full effect [of the government shutdown] will become clearer months, and even years, down the road,” the NTA observes.

Lucia Nasuti Smeal is a guest blogger on tax topics for Frazier & Deeter. Smeal is an attorney, a tax professor with Georgia State University’s J. Mack Robinson College of Business, and former editor of Tax Notes Today, published by Tax Analysts. Smeal also worked as a legislative analyst for the Congressional Research Service and is a former member of the U.S. House Periodical Press Corps. She is a frequent speaker on current tax developments.

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