Jan 16, 2019

Government Shutdown Could Raise Tax Refund Revolt

Sean J. Brennan, CPABy Sean J. Brennan, CPA | Brennan and Company CPA PC

MoneyLife100The federal government shutdown has been ongoing for several weeks, and it is now the longest in U.S. history. President Donald Trump stated recently the shutdown could last months or “even a year.”

Contrary to what some are saying, the IRS is open – albeit with a severely scaled back work force. The IRS is prepared for the current season, which is set to begin Jan. 28, 2019, as of the date of this article, and has said it will bring back additional resources once tax filing commences.

Preparing tax returns during a shutdownThe IRS previously released a contingency plan: FY 2019 Lapsed Appropriations Contingency Plan. The plan (which is already obsolete since it only accounted for the first five days of the shutdown) provides some shutdown impact guidance. It notes that 1040X processing and audits will be impacted.

Furthermore, the IRS will be focusing on current year processing only, and nothing outside of the current tax season can be addressed. So, the processing of prior year IRS notices will wait. It remains to be seen what other services, such as Practitioner Priority Service or Tax Payer Advocate, will eventually be affected.

The IRS recently announced that it would resume its Income Verification Express Service (IVES). IVES was suspended when the partial government shutdown began more than three weeks ago, but it was reinstated after intense mortgage industry lobbying. IVES provides tax transcripts for mortgage applicants, and is critical in processing loan applications for people who are self-employed since their taxes aren’t backed up by pay stubs or a W-2 wage report.

Although this is an important program for many prospective home buyers, many have questioned the preferential treatment for the mortgage industry while so many rank-and-file IRS employees remain out of work and unpaid.

Electronic tax filing will commence Jan. 28, but there are conflicting opinions as to how well this filing season will proceed. CPAs: caution your clients to expect delays and some glitches while we await resolution. A little patience and increased client communication can help alleviate the anxiety that these unknowns produce.

The political will to keep the government in shutdown appears strong now, in mid-January, when politicians can safely make claims of a principled stand. But once we close in on the start date of tax season, and it becomes clearer that tax return processing will be hindered and thousands or millions of tax refunds are going to be significantly or indefinitely delayed, then the chorus of “Where’s my refund” will grow extremely loud … too loud to ignore.

At that point, political will may become a political albatross.

Sean J. Brennan, CPA, is president of Brennan and Company CPA PC in Philadelphia, and is chair of the PICPA Federal Taxation Committee.

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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.