Government wrangling over spending could cause the Internal Revenue Service to shut down weeks before April 15, making the rushed tax season even more chaotic than usual.
Traffic jams at the Capitol could make it harder for Americans trying to call the IRS, and families owed refunds could have to wait longer for their checks to arrive. .
This uncertainty comes as lawmakers last week averted a partial government shutdown on March 2, while cutting off a deadline for the most vexing part of the current funding battle just 24 days before the tax filing deadline. This comes after an agreement was reached to postpone the meeting until March 22nd.
The two leaders have agreed on how to fund the less contentious parts of the government, where a vote is likely to begin on Wednesday. But even if the plan passes, the toughest questions will still loom at the end of the month.
These include funding not only for the IRS, but also for the Department of Defense, Department of Homeland Security, and even the White House itself.
This arrangement could put government tax collectors in uncharted territory, as they have not previously had to contend with a closed government in the middle of tax season.
“There's some uncertainty there,” IRS Commissioner Daniel Werfel told reporters earlier this year that some features could be maintained if that were to happen.
Larry Pong, a former IRS employee and now a certified public accountant based in San Francisco Bay, told Yahoo Finance that IRS computers will likely continue to accept electronically filed tax returns. Ta.
“However, refunds may be delayed,” he said. “Let's hope that doesn't happen!” he added.
At least some confusion is likely to occur
This is not something the IRS usually has to worry about. Government shutdowns most often occur in the fall or early winter, around the start of the government fiscal year on October 1st.
The 2018-2019 shutdown was the longest on record and caused confusion as that year's tax season had just begun. Until the government reopened on January 25, IRS offices across the country were closed, phones were disconnected, and refund check processing was delayed.
The government never shut down in February, March, or April.
One lawmaker concerned about timely filing this tax season is Sen. Ron Wyden (D-Ore.), chairman of the Senate Finance Committee, who helps oversee the agency on Capitol Hill.
He said authorities need to consider all options to ensure a timely checkout.
“One of the reasons we've been strengthening the finances of the IRS is to prevent something like that from happening,” he said on the sidelines of a Capitol Hill meeting last week.
Previous closures have temporarily reduced the number of employees answering phones and processing returns manually, but would be a disruptive change for taxpayers if implemented during filing season.
The 144-page IRS Contingency Plan provides up-to-date guidance on how to respond to service outages. However, the plan paints an incomplete picture because it was drafted last September and focused on plans during the pending period.
The plan foresees the possibility of large-scale furloughs, representing about two-thirds of the workforce, but exempts “additional positions” that may continue to work during the application period. It also incorporates flexibility.
Harris Talwar, a spokeswoman for the Treasury Department, which oversees the IRS, touted the agency's track record this past filing season, saying the Biden administration is committed to “minimizing disruption to taxpayers and providing world-class service throughout the filing season.” We are committed to ensuring that this continues,” the statement added. . ”
The IRS regularly updates its plans and is almost certain to issue revised guidance in the coming weeks if a shutdown becomes more likely. For example, the current contingency plan was announced on September 28, 2023, just days before the then-current closure deadline of October 1.
Previous contingency plans, particularly the 2023 contingency plan, presented a much different outlook, with billions of dollars from the Inflation Control Act of 2022 keeping most of the agency's 83,000 employees employed. Generally speaking, “normal IRS business continues.”
Mr. Wyden helped author legislation in 2022 that would send billions of dollars to the agency outside of its regular appropriations process to improve its enforcement capabilities, customer service and overall operations. “Obviously it's going to have some effect,” Wyden said of the money.
second headache
And the shutdown isn't the only thing that could complicate the current tax season.
Tax professionals have a second headache, having to consider bipartisan tax agreements that affect some of their current returns. The House passed it, but it is currently stalled in the Senate.
The American Families and Workers Tax Relief Act of 2024 includes three business credits that could impact 33 million small businesses and a child tax credit that is claimed by approximately 46 million Americans annually. Contains an expansion of. Most of the bill's provisions would apply retroactively to 2023 federal returns, as well as 2024 and 2025.
Wyden is a co-author of the deal with Missouri Republican Rep. Jason Smith, but their efforts have run into hurdles within Senate Republicans.
Sen. Mike Crapo (R-Idaho), Mr. Wyden's counterpart on the Finance Committee, announced this week that he would vote against the bill unless it undergoes a series of changes.
The bottom line, Crapo said, is that the bill has “no path forward in the Senate in the short term.” What remains to be seen is whether Democrats like Wyden and Senate Majority Leader Chuck Schumer will try to move forward anyway, or agree to an amendment process that would delay the bill, or even repeal it altogether. That means there is even a possibility.
Tobin Marcus, head of U.S. policy and politics at Wolfe Research, said in a note to clients last Friday that “the chances of a tax deal have been steadily decreasing and are currently below 50% in our view. “There is,” he said.
He said two taxpayer concerns, both the shutdown and the current tax bill, could come to a head at the same time later this month, with a bipartisan tax bill included in an overall compromise that would reduce funding for the IRS. It added that the offer could also be maintained.
A bipartisan tax bill could be part of an overall compromise that maintains funding for the IRS.
However, it is far from certain, and for now taxpayers and filers will have no choice but to wait.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA). Ben Werschkul is Yahoo Finance's Washington correspondent.
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