Government shutdown could disrupt upcoming tax season, IRS commissioner says

Personal finance

Internal Revenue Commissioner Danny Werfel speaks during his swearing in ceremony at the IRS on April 4, 2023 in Washington, DC. (Photo by Bonnie Cash/Getty Images)
Bonnie Cash | Getty Images News | Getty Images

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.

More from Personal Finance:
Bipartisan tax deal could boost child tax credit for 2023. What to know
2024 will be ‘a very good year for savers.’ Why you may want to lock in a CD now
How to qualify for Biden’s fast-tracked student loan forgiveness

“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.

“It’s not just a regular filing season,” he said, pointing to challenges like the employee retention tax credit backlogs and the upcoming Direct File pilot program, which will allow certain taxpayers to file directly with the IRS for free. 

Meanwhile, the IRS faces mounting pressure to continue improving service after an infusion of funding and efforts from some Republican lawmakers to rescind it.

There’s an “incredibly long list of things that they’re after,” Everson said. “They certainly don’t need that kind of disruption.” 

Don’t miss these stories from CNBC PRO:

Articles You May Like

Issues with new FAFSA may cause ‘shocking’ decline in the number of students getting college aid, expert says
This IRS issue is ‘the biggest, most consistent problem’ for taxpayers, expert says
FTC sues to block Kroger, Albertsons merger, arguing deal would raise grocery prices and hurt workers
China’s Country Garden gets liquidation petition from creditor
Online trading platform Webull is set to go public via a $7.3 billion SPAC deal