IRS Contingency Plan During Government Shutdown

On January, 15, the IRS released an updated Contingency Plan recalling 57.4% of its employees to work during the filing season shutdown. Per the new plan, excepted employees now include those whose activities are necessary for the payment of tax refunds. These activities include:

• Processing electronic returns through issuance of refunds
• Processing Paper Refund Tax Returns through issuance of refunds
• Processing 1040X Amended Refund Returns Adjustments including Carrybacks, Amended Returns, Duplicate Filed Returns (DUPF), Correspondence, Injured Spouse Claims, Disaster Claims, F843 Claim for Refund and Request for Abatement in support of issuing refunds
• Processing Department of Defense Claims for refunds
• Manual Refund Support - Clerical
• Document preparation, screening and control of work in Image Control Team On the evening of January 7, the IRS confirmed in a news release that filing season will start on time – January 28 - and that it will be issuing refunds.

The IRS also noted it will be recalling a significant portion of its workforce, currently furloughed as part of the government shutdown. The filing deadline remains unchanged.

The IRS plans to release an updated FY2019 Lapsed Appropriations Contingency Plan publicly in the coming days.

The 2019 tax filing season is right around the corner, and CPAs everywhere are watching and waiting to see how it will unfold. Pending tax reform guidance, state tax law changes and cybersecurity concerns complicate the picture enough, and now we’re faced with yet another government shutdown.

It may feel like a perfect storm is brewing, and to say there’s uncertainty in the CPA community is an understatement. You probably have a lot of questions about what the shutdown means for you and your clients.

We’re here to share a little insight on that.

The government shutdown and you

In December, the United States government shut down for the third time in one year. Since the shutdown, the Internal Revenue Service has been operating under a contingency plan which allows for only excepted/exempt employees to remain in service.

This means that since the shutdown began at midnight on December 22, only a small portion of the IRS staff has been at their desks. Of the approximately 80,000 IRS employees on the rolls, only 9,942 — that’s 12.5 percent for you number crunchers — are currently working. These workers are considered “excepted/exempt” employees and include those IRS staff members working to implement tax reform. (Read more about what the IRS considers an excepted/exempt employee activity.)

The pain point for CPAs and taxpayers comes from the non-excepted IRS functions that are suspended during a government shutdown. These include:

• Processing non-disaster relief transcripts, income verification express service/return and income verification services
• Processing 1040X amended returns
• All audit functions, examination of returns, and processing of non-electronic tax returns that do not include remittances
• Non-automated collections
• Information systems functions (except as necessary to prevent loss of data in process and revenue collections)
• The closure of most headquarters and administrative functions not related to the safety of life and protection of property

An issue of timing

Once the government shutdown ends, tax practitioners may be dealing with IRS staff that haven’t received proper training. It’s also possible there will be eleventh hour tax extender legislation. In addition to these issues, many forms are still pending approval or remain in non-submittable format, so tax software will struggle to keep up.

The IRS indicated e-filing season should open on time. Legally, taxpayers are permitted to start filing paper returns on January 1, 2019, but that’s not going to help much; anticipated refunds from these won’t be processed any sooner than e-filed returns.

The key to getting through this shutdown and beyond

So now that you have received all this good news, the question becomes: “Where do I go from here?”

The short answer is this: It’s business as usual for you and your clients. Regardless of the length of the government shutdown, your clients need to gather their tax information and get it over to you as soon as it’s available. Being able to review this information in a timely fashion is crucial to keeping the tax workflow moving and can help mitigate end-of-season bottlenecks.

Even if the government shutdown ends soon, it’s important to make sure your clients know about how this and other issues will affect their returns. Remember:

• Advise clients that preparation could take longer due to the shutdown and manage their expectations accordingly.
• Explain how the need for additional information for certain tax reform provisions could make tax season trickier.
• Help clients understand the potential benefits of tax extensions (where necessary) early in the season. Communication and education are key to developing and maintaining your trusted adviser position with your clients. With everything going on, you have a lot on your plate. But by looking ahead and keeping the moving parts in check, you can make this your best busy season yet.

Visit the AICPA Tax Season Resources for CPAs for the most recent information on the government shutdown and other key issues affecting the 2019 season.