How Another Government Shutdown In The Middle Of Tax Season Can Stifle IRS Operations And Increase Tax Problems For Taxpayers.
As required by law, once a year the Taxpayer Advocate’s Office (an independent Federal government department that monitors the Internal Revenue Service) must send a report to Congress describing challenges the IRS is facing, problems experienced by taxpayers in dealing with the IRS and recommendations to resolve these problems.
On February 12, 2019, National Taxpayer Advocate Chief Nina E. Olson released her 2018 Annual Report to Congress describing challenges the IRS is facing as a result of the recent government shutdown. The release of the National Taxpayer Advocate’s report was delayed by a month because of the government shutdown.
Ms. Olson also released the second edition of the National Taxpayer Advocate’s “Purple Book” which presents 58 legislative recommendations designed to strengthen taxpayer rights and improve tax administration.
Impact of the government shutdown on taxpayer rights
Ms. Olson cited in her report how the IRS during a government shutdown is implementing the Anti-Deficiency Act, 31 U.S.C. §1341, which provides that in the absence of appropriated funds no obligation can be incurred except for the protection of life and property, the orderly suspension of operations, or as otherwise authorized by law. This means that absent an appropriation, many Federal employees are prohibited from working, even on a volunteer basis, “except for emergencies involving the safety of human life or the protection of property”. 31 U.S.C. §1342. Accordingly, each Federal agency must designate those employees whose work is necessary to sustain legal operations essential to the safety of human life and the protection of property.
Although not stated in the law or Justice Department guidance, the IRS Office of Chief Counsel has interpreted the “protection of property” exception to apply only to the protection of government property – not a taxpayer’s property.
This could be a big problem for taxpayers if just before a government shutdown the IRS issues a levy to a bank. When receiving a levy notice, the bank must freeze the taxpayer’s account for 21 days and then if the levy has not been released, the bank must turn the funds over to the IRS.
Ms. Olson in her report noted that the Internal Revenue Code requires the IRS to release a levy if it has determined the levy is creating an economic hardship due to the financial condition of the taxpayer. However, the IRS’s legal interpretation of the Anti-Deficiency Act would not permit personnel to work on any taxpayer’s account to release levies even if the taxpayer needed the levied funds to pay for basic living expenses or a life-saving operation.
Ironically, the IRS’s Lapsed Appropriations Contingency Plan allowed employees to open mail solely to search for checks payable to the government. The plan did not permit any employees to assist taxpayers experiencing an economic hardship.
Impact of the government shutdown on IRS operations
The report says the shutdown has had a significant impact on IRS operations. The IRS opened the 2019 filing season immediately after the shutdown ended, and a comparison of services between now and 2018 shows greater difficulties in getting assistance.
|Assistance Requested From IRS||2018||2019|
|Accounts Management – Percentage of IRS officials answering incoming calls||86%||48%|
|Accounts Management – Average wait time for call to be answered||4 minutes||17 minutes|
|Automated Collection System – Percentage of IRS officials answering incoming calls||65%||38%|
|Automated Collection System – Average wait time for call to be answered||19 minutes||48 minutes|
|Installment Agreement/Balance Due – Percentage of IRS officials answering incoming calls||58%||7%|
|Installment Agreement/Balance Due – Average wait time for call to be answered||30 minutes||81 minutes|
During the government shutdown, correspondence inventories ballooned. By January 24, 2019 the IRS had more than five million pieces of mail waiting to be processed; it had 80,000 responses to 2018 Earned Income Tax Credit (EITC) audits that had not been addressed (likely causing eligible taxpayers to have their legitimate EITC claims frozen during the 2019 filing season); and it had 87,000 amended returns waiting to be manually processed.
An Opportunity For Taxpayers Who Owe The IRS.
Do not think that if you owe the IRS your tax problem will disappear because the IRS is not fully operational in another government shutdown or is still catching up from the last government shutdown. Instead you should be utilizing this valuable time to get yourself prepared so that when IRS is resuming action against you, you are ready to make the best offer or proposal to take control of your outstanding tax debts.
As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS. Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now in 2019, taxpayers who expect to owe for 2018 should have their 2018 income tax returns done now so that the 2018 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2019.
Remember that it is the government that was shut down – not the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do by law.
The take away from this – use the Federal government’s downtime to your advantage to prepare for the future.
What Should You Do?
You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Metropolitan Los Angeles (Long Beach and Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what our cannabis tax attorneys can do for you.