How Does a Government Shutdown Affect Taxpayers?

 In IRS Problems, Tax Debt, Tax Filing

The extremely tight margin of the controlling party in the House of Representatives has led to some interesting, historic, and some might say chaotic outcomes on U.S. government operations this year. Legislation involving the basic functions of our government has become significantly more difficult to pass. We narrowly avoided a national debt default this past summer and were just hours away from a government shutdown last weekend.

However, we are not out of the woods yet. We could still potentially see a government shutdown toward the end of this year. A continuing resolution of only 45 days was passed at the 11th hour last weekend, and though that temporarily helped us avoid a government shutdown, unfortunately the short time span covered in the legislation means we’ll be back in this situation again quite soon—but this time with a potentially vacant House Speaker post. No one knows what is coming, and the recent activity in the markets certainly reflects this.

For this month’s blog article, I thought it would be helpful for my clients to see some of the impacts that a government shutdown might have on IRS operations—thus, how it would impact us as taxpayers. Most people understand that our military and many essential government employees such as border patrol are required to continue working without pay, and many are aware of (and may have experienced) the chaos imposed on travelers due to en masse resignations of TSA agents and air traffic controllers who are not paid during government shutdowns. If you would like to understand more about how government shutdowns impact us as taxpayers, please read on.

Delayed Filing Season/Delayed Refunds

The vast majority of my clients file on time each year, so many may not be aware of this tidbit; however, most tax practitioners know that each year there is what’s called an e-file “blackout period” where no returns can be electronically submitted to the IRS. The e-file blackout period allows the IRS to gear up its systems and staff in preparation for the upcoming tax season. Usually, this period lasts somewhere between Thanksgiving and mid-to-late January when the next filing season opens.

If a government shutdown were to occur during this period, as is possible this year, it would likely cause the tax filing season for 2023 taxes to have a delayed opening date in 2024. This delay would also impact prior-year returns that taxpayers might need to e-file or amend as no returns for any tax period can be electronically submitted during the blackout period.

During Covid there were some e-file start dates as late as February. A delayed filing season, of course, means delayed processing of returns, and thus delayed refunds. This would impact both federal and state tax filings, since most state tax returns cannot be e-filed until the federal filing season opens (many of the state returns begin their computations with federal adjusted gross income and require finalized federal forms). State e-file seasons typically open days, weeks, and sometimes even a month after the federal season opens.

Reduced Customer Service

As the IRS pares down its staff to only the essential personnel (typically collections and audit personnel), the taxpayer assistance offices and telephone queues close. This makes it very difficult to resolve taxpayer matters and receive answers to questions taxpayers have about their accounts. Outstanding requests for penalty abatement, offers in compromise, replies to proposed assessments, and many other functions of the IRS that taxpayers benefit from are significantly delayed or shut down. During Covid, these delays had substantial impacts on taxpayers, and recently we were seeing traction with some of these functions approaching normal response times. However, a shutdown would result in significant delays in resolving taxpayer matters. As someone who handles these matters frequently, I can attest that this results in prolonged stress on taxpayers with pending IRS debt, tax notices, and other matters that require resolution.

Reduced Access to Online Tools

Many tax practitioners and taxpayers alike have come to rely on freely available access to their taxpayer accounts on IRS.gov to access balances due, payment records, transcripts, and other information and updates instantaneously. During a government shutdown, there will be fewer IRS staff to maintain and update the IRS website, which may reduce access to these essential online tools, forms, and information.

If you have outstanding taxpayer matters or need to file past due returns before the e-file blackout period begins, I would recommend getting started with those as soon as possible in the hopes of resolving them before a potential government shutdown. If you need assistance, please contact me using the form below.

 

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