Threats of government shutdowns have grown increasingly frequent over the last couple of decades. Government shutdowns create inefficiencies and are expensive. Even the threat of a shutdown creates a sense of unease and concern. The potential for the IRS shutting down on February 3 is no exception.
Past experience has taught us that an IRS shutdown, especially between now and April 15, will have dire consequences to the IRS, millions of taxpayers and tax practitioners. Due to the potential impact, the AICPA has been pushing for an update to the IRS Contingency Plan allowing 100% of IRS employees to provide assistance to taxpayers and their practitioners in the event of a government shutdown.
Regardless, there are steps to help prepare for a shutdown and to mitigate some consequences.
At a minimum, to prevent further penalties, the IRS can provide automatic extensions to notices and collections until 90 days past the end of a shutdown. The IRS should also ensure that online systems and accounts operate effectively allowing ongoing taxpayer transactions with the IRS. Additionally, the IRS could retain most or all Chief Counsel attorneys to continue providing detailed guidance to taxpayers to meet their tax obligations.
Tax practitioners should start raising awareness with clients. Even more now than before, it is important to encourage clients to provide all their tax data well in advance of the filing due date. Clients need to understand that incomplete tax data results in red flags on their tax returns causing extensive refund delays. AICPA Tax Section members can download a client letter to set expectations and read through an FAQ on what to expect for the filing season.
Additionally, tax practitioners should have a procedural plan in place, in the event of a shutdown, to account for extensions and workload during and immediately after a shutdown. For example, if a practitioner knows a client has a complex return that requires a call to the IRS, will the practitioner automatically file extensions these types of clients?
Once the shutdown is over, wait times on the phone have historically been alarmingly long. Tax practitioners and their clients should prepare for this possibility and be able to advance the tax preparation without an immediate need to call the IRS.
Finally, taxpayers should also take an active role in gathering their tax data before the start of the filing season. They should double check to make sure they aren’t omitting any sources of income that could trigger a notice (such as gambling winnings or freelance job earnings).
Filing electronically and getting your tax refund by direct deposit also eliminate the need to communicate directly with the IRS. Taxpayers should also settle any back taxes they owe allowing them time to create an installment agreement and avoid further penalties.
Although preparation for a shutdown helps, no amount of remediation eliminates the impact of a government shutdown. Ideally, a shutdown will be avoided altogether.
As we approach the end of the continuing resolution for the IRS, we continue to urge Congress and the IRS to update their contingency plan to allow all IRS employees to continue providing needed services to taxpayers without interruption.