The Internal Revenue Service (IRS) will be back to work processing tax returns and issuing tax refunds following an announcement that the government shutdown has ended. But the news hardly means that tax season will be normal: the IRS has indicated that it will take quite some time to recover.
The IRS has told lawmakers that workers will return to “millions of unanswered taxpayer letters” just as tax season opens on January 28. The 35-day shutdown means that the agency is weeks behind schedule on training and new hires for tax season – and that doesn’t take into account recovering from the backlog. According to the Washington Post, the National Taxpayer Advocate advised House officials that it will take “at least a year” for the IRS to return to normal operations. The IRS hasn’t confirmed that statement; House aides who conveyed the conversation were not identified since they are not authorized to speak publicly about the specifics.
After the revelation, taxpayers across the internet quickly disputed the timeframe, arguing that a 35-day shutdown should resolve in about the same period of time. But that doesn’t make sense. Here’s why.
The IRS reportedly has a backlog of 5 million unanswered pieces of mail. At the height of the shutdown, the IRS was receiving more than 700,000 pieces of mail per day – nearly three times what it was receiving ten days prior. Why the increase? As the shutdown dragged on, in-person taxpayer assistance centers, fax lines and phone systems were closed. That meant that taxpayers and tax professionals were forced to send all requests – even routine requests – by U.S. Mail. I can confirm this to be true: all IRS requests made from our office during the shutdown were made by mail, sometimes to multiples offices for one matter.
So, let’s assume that the 200,000 pieces of mail received before January 16 represents a “normal” day during tax season. Let’s further assume that the number of requests received by IRS drops back to that number now that the shutdown is over (remember, it’s still tax season). Assuming no other work to be done, that would mean that IRS workers returning to the office would break even.
But what about the backlog? If IRS hired additional staff to answer mail at a rate equal to the work being done before the shutdown, it would take 25 days just to clear the backlog of mail.
You and I both know that Congress isn’t going to increase the IRS budget at all, much less give the agency enough funding to double its staff. So let’s assume instead that the IRS reassigns some workers and others boost their productivity so that they are 10% more efficient than before. If the agency can process 20,000 more letters per day, they can wipe out that backlog in 250 business days – roughly, a full calendar year.
You see the problem, right? And of course, you know that the IRS does more than answer mail. The IRS had already confirmed that if you had a scheduled appointment related to an examination/audit, collection, Appeals or Taxpayer Advocate case, those meetings would be canceled during the shutdown and rescheduled after the IRS opened it doors again. Taxpayers who submitted applications or requested determinations for tax-exempt status or pension plans were also forced to wait; those were not processed during the shutdown. Additionally, the IRS did not conduct any new audits or pursue non-automated collection activity during the shutdown. And many U.S. Tax Court cases and conferences were canceled (more on those here). Everything that was put on hold has to be tackled on top of the normal workload and wait times were already expected to be long during tax season.
The IRS also has to contend with the Tax Cuts and Jobs Act (TCJA). While money had been appropriated for the TCJA separately from the IRS for some projects (like sorting out those crazy 199A Regs), the government shutdown delayed training IRS employees about the changes. And shortly before the shutdown, the IRS introduced a new form 1040 (see it here) with at least six additional schedules. If my social media feed and email inbox are any indication, taxpayers are going to have questions for IRS employees about how the changes apply to them.
Those changes could lead to a slew of new phone calls about the timeliness and size of taxpayer refunds. Watchdogs have previously warned taxpayers that they could owe more in taxes, with smaller tax refunds to pocket and bigger checks to write. Of course, concerns about tax fraud and identity theft have already slowed down tax refunds; those claiming the EITC or ACTC can’t get paid until mid-February (more here). With so much happening – and no one at IRS to answer the phones – taxpayers have been waiting to ask their questions.
And while the IRS advised that its website would continue to operate normally during the shutdown, taxpayers and tax professionals alike noticed lags, errors and nonfunctioning pages during the shutdown. The IRS information technology systems have long been a concern, with former IRS Commissioner John Koskinen reporting during his tenure that some of the systems dated back to the Kennedy administration. Last year, on Tax Day last, the IRS online systems crashed, sending taxpayers into a panic (fortunately, they were allowed an extra day to file). It may not get better this year: the IRS reportedly lost 25 tech staffers per week during the shutdown.
So what does this all mean for taxpayers and tax professionals? Delays. So be patient. The hope is that things will get back to as normal as possible, but there are bound to be challenges along the way. One of the most concerning? What to prioritize. It’s not a certainty that the IRS will stay open through tax season: while Congress passed a bill, signed by the President, to end the shutdown, funding for the government has only been guaranteed for three weeks.