How a Government Shutdown Affects Your Tax Returns

How a Government Shutdown Affects Your Tax Returns

Recent headlines have been dominated by news of a government shutdown. All of this talk about a government shutdown right as tax season starts is raising concerns. Many of our clients specifically want to know how a shutdown would impact their tax return. As Certified Public Accountants, we wanted to take the time to explain the effects a government shutdown could have and hopefully clear up any misconceptions.

What is a government shutdown?

A government shutdown is the closure of government offices due to lack of approval on the federal budget for the upcoming fiscal year. For example, a government shutdown may close federally run operations like national parks and monuments, and halt work for certain federal workers like FBI employees and TSA screeners, unless they are considered essential. The shutdown stays in effect until a compromise in Congress is reached and a budget bill is passed.

Does the IRS still function during a shutdown?

Should a federal government shutdown occur, the IRS will retain less than half of its workforce, which is about 35,000 people. That may sound like a lot, but that workforce is the bare minimum they need to continue some operations in the short term. These operations include:

  • Processing electronic returns
  • Processing returns with payments
  • Mailing tax forms
  • Reviewing appeals
  • Repairing and maintaining computers, servers, databases, etc.

What will the IRS not do during a shutdown?

Of course, with about half of its workforce gone, the IRS will need to stop some work altogether, such as:

  • Issuing refund payments
  • Processing paper tax returns that do not include payments
  • Processing non-disaster relief transcripts
  • Processing 1040x amended returns
  • Performing audits
  • Conducting non-automated collections
  • Providing legal counsel

The first two points are the ones most people are interested in. To put it simply, if you owe money, the government is happy to take it, but if they owe you money, then you’ll have to wait until the government starts running again.

So should I submit my tax return during a shutdown or wait?

Even if the government shuts down, you should submit your tax returns by mail or online as you normally would. If you are currently making estimated tax payments on any tax obligations, then you are still required to make those payments online during the shutdown.

How does the new tax law play into this?

A government shutdown may also impact the Tax Cuts and Jobs Act, which was signed into law on December 22. National Taxpayer Advocate Nina Olson has already made it clear that the IRS needs more money to properly implement the law. A shutdown certainly won’t help matters. That’s the big caveat to all of this: The longer the shutdown goes on for, the worse any potential problems will get. In particular, the IRS has indicated that if the shutdown lasts longer than five days, there could be more limitations to services and delays to the tax law getting implemented.

What if I am still confused?

With the new tax law in place and potential government shutdowns, it’s likely that you have more questions about your specific tax situation. If so, contact the tax experts at Tobin & Collins who can help you make sound tax and financial decisions amidst economic and political uncertainty. For over 50 years, Tobin & Collins has provided accounting, tax, and business support services to clients in the New Jersey and New York metropolitan area.