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Shutdown causing chaos at IRS — and may delay tax refunds

Tax refunds may be delayed due to shutdown

Americans are used to procrastinating when it comes to filing their taxes. This year, tax season is expected to see an even bigger delay — thanks to the government shutdown.

The Internal Revenue Service is one of the many federal agencies that has closed its doors since Dec. 22. Only 12 percent of its staff are working — without pay — mostly focused on security and technology. The agency is not issuing refunds, updating tax forms or answering phone help lines, according to its shutdown plans.

That's making tax professionals sweat as they gird for an abridged filing window. The shutdown complicates an already complex tax season due to the myriad new regulations created by the Tax Cuts and Jobs Act, the sweeping bill signed into law by President Donald Trump in late 2017.

"When I look in my tax software, which is professional tax software, there are many forms that haven't been finalized," said Steven Zelin, a CPA based in Manhattan. "We can't file. And since the tax law changed so much, there's a likelihood that there may be a delay" in starting the filing season, he added.

Anyone hoping that an IRS shutdown means getting a breather on their taxes will be disappointed. The agency's website says taxpayers "should file and pay their taxes as normal."

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The problem is, the weeks before tax season are anything but "normal" at the IRS. They mark the end of its annual late-year closure and, this year, follow the biggest overhaul to the tax code since the 1980s.

The IRS typically shuts down from November through the end of the year to update its systems with annual tax changes. That includes changes to many tax forms, which make the basis of calculations done by tax software, both professional software and programs used by consumers.

In the last two years, the IRS has announced on Jan. 4 or 5 the date that people can start filing their taxes electronically, usually in the second or third week of January. As of Friday, it's unclear when filing season begins. The IRS wasn't immediately available for comment.

"Typically around now, the first couple of weeks [of the year], we would hear something," said Lisa Greene-Lewis, a CPA with TurboTax. Greene-Lewis and other tax preparers interviewed for this article said they hadn't heard from the IRS ahead of the shutdown about how to proceed if the agency were closed.

Greene-Lewis said TurboTax's filing systems are ready to go even with IRS business at a standstill. Taxpayers can still file via the online tax tool, but the company will simply store their information until electronic filing opens, at which point they will transmit it.

IRS won't issue refunds during shutdown

If the shutdown continues into the tax filing season, the IRS could recall additional staff, according to a union official. The agency still won't issue refunds, however. That is considered less-than-essential (or "non-excepted," in IRS jargon) activity, according to the agency's shutdown plan.

Far greater challenges face Americans who are in the midst of sorting out tax problems with the IRS, like audits, or those who have questions about tax returns.

Angela Reed, a partner at Tarbell & Co., a CPA firm in Iowa, is trying to help a client who filed some nonprofit tax returns late. But with the IRS unstaffed, she's at a standstill. "I can't do anything with that, currently. I can't call the IRS and have a discussion."

Trump, congressional leaders to meet at White House on government shutdown

Reed, whose firm prepares about 4,000 tax returns every year, said she isn't feeling a severe impact from the shutdown —  yet. But she worries about potential delays in processing tax refunds if the shutdown drags on.

Taxpayers who've been counting on a refund to pay off credit card bills wracked up during the holidays may feel themselves squeezed, in other words. The IRS issued 102 million tax refunds last year with a total value of $285 billion, according to eFile, a tax software site.

Even before the shutdown, there were concerns IRS staffers wouldn't be ready in time for tax season, given the extent of the changes in the 2017 tax law.

"We just had the largest tax reform since 1986, and the IRS is having to do a lot of work to get ready for that," said Tony Reardon, president of the National Treasury Employees Union, which represents workers at the IRS and elsewhere.

"What I've heard from our members is concern that the training they were getting was in some instances outdated, incomplete —and this was before the shutdown," Reardon said. "There's a very real possibility that the tax filing season would have to be delayed."

"I was bracing for this," said Jonathan Medows, a CPA in Manhattan. "I noticed years ago when the IRS makes these changes, [tax software companies] struggle to implement them…. And that's in a good year, when you have just a few tax changes."

There's no precedent for the IRS being shut down so close to tax season, added Mark Mazur, a former tax policy official at the Treasury and current director of the Tax Policy Center. The one that comes closest is the 27-day government shutdown in 1995, which stemmed from a conflict between Democratic President Bill Clinton and the Republican-controlled Congress. That impasse ended Jan. 6, 1996.

"We're currently in unprecedented territory here," he said.