Tax Law — Understanding Changes to Tax Law During a Government Shutdown

A government shutdown occurs when Congress and the President fail to agree on funding legislation to keep federal agencies running. This leads to partial or full closure of many government operations including some IRS functions. Although the existing tax laws remain effective and enforceable, the IRS’s ability to process tax returns, issue refunds, respond to inquiries, and conduct audits can be significantly impacted.

What Happens to IRS Services During a Shutdown?

• Reduced Staffing and Service Delays: Most IRS employees are furloughed or work with limited resources during shutdowns. This causes delays in processing tax returns and issuing refunds. Taxpayer assistance, especially phone support, may be unavailable or slow.

• Tax Filing Deadlines Usually Remain: Unless the IRS announces official deadline extensions, tax filing and payment deadlines normally stand. Taxpayers should file on time or request extensions to avoid penalties.

• Enforcement Activities Slow or Pause: IRS enforcement measures such as audits, collection efforts, and notices often pause or slow down temporarily depending on shutdown length.

• No Change in Tax Rates or Credits: Tax laws including rates, deductions, and credits are unaffected unless Congress passes new legislation.

During the 2018-2019 government shutdown, the longest in U.S. history, the IRS furloughed approximately 90% of its workforce, delaying refund processing and communication with taxpayers. The IRS later provided filing deadline extensions for some taxpayers to help ease the impact.

Who Is Most Impacted?

Individual taxpayers, small businesses, and tax professionals typically face slower IRS responses and longer waits for refunds and assistance. IRS employees face furloughs and uncertainty that affect agency efficiency.

Tips for Taxpayers Facing a Shutdown

1. File Tax Returns On Time: Avoid missing deadlines even if the IRS is operating at reduced capacity. File your returns or request extensions to prevent penalties.
2. Monitor IRS Updates: Check the IRS official site (irs.gov) for the latest operational status and announcements.
3. Be Patient with Refunds: Expect delays and avoid excessive calls to IRS phone lines, which may be overwhelmed.
4. Keep Detailed Records: Maintain organized tax documents in case you need to resubmit or follow up once normal operations resume.
5. Consult Tax Professionals: Experts can help navigate shutdown-related challenges and timing issues.

Common Misunderstandings

• Filing deadlines do not automatically extend without IRS announcements.
• Refunds owed are still paid but may be delayed.
• The IRS does not completely stop working but operates with minimal essential staff.

Frequently Asked Questions

Q: Are tax payments still due during a shutdown?
A: Yes, tax payments remain due on schedule. Late payment penalties may apply if payments are not made by the deadline.

Q: Will a refund delay cause penalties?
A: No, penalties apply to late filing or payments, not delayed refunds.

Q: Can I contact the IRS?
A: Phone lines and services may be limited. Use online resources and check official IRS updates.

Shutdown Impact on IRS Services

For more detailed insights on tax rule changes and legislative processes, see our related article on How Tax Law is Made: From Proposal to Enactment.

Sources:

• IRS.gov, IRS Operations During the Government Shutdown
• ConsumerFinance.gov, How a Shutdown Affects Federal Service Delivery
• Investopedia, What a Government Shutdown Means for Taxes

Understanding the nuances of IRS operations during a government shutdown can help taxpayers plan better and reduce stress. Though tax laws stay constant, the accessibility of IRS services can fluctuate significantly in these periods.