Americans may get their refunds during the shutdown, but the upcoming tax filing season is likely to be one of the rockiest in decades as the Internal Revenue Service grapples with a major tax overhaul with limited staff.
The agency is rushing to update its systems following the biggest change to the tax code in three decades — while a government shutdown has kept seven in eight IRS employees away from work for the past 25 days. The 2017 tax overhaul affects virtually every tax return that will be filed after the season begins on Jan. 28.
For individuals, the overhaul changed the tax brackets, expanded the child tax credit and eliminated or limited several niche breaks. Pass-through businesses now can get a 20 percent deduction on some of their income, but have to follow complicated rules to figure out if they qualify. Multinationals also face complex regulations related to their offshore profits.
“The agency will try to doggedly deliver the filing season, but it’s going to be ugly in moments in ways we haven’t yet even anticipated,” said Robert Kerr, the executive vice president of the National Association of Enrolled Agents, a group that represents licensed tax preparers.
The IRS will have about 46,000 of its more than 80,000 employees at work in the coming days, according to an
To prepare for the filing season, the agency will re-open call sites that had been closed during the shutdown. The IRS’s computers will still flag returns that raise red flags for more scrutiny, while non-automated audits will continue to be on pause.
But, with the agency operating at about 57 percent of staff and using newly updated systems and revised forms to accommodate all the law changes, hiccups are bound to occur, according to tax professionals. Here are some of the pitfalls to watch out for this tax filing season:
Minimal Customer Service
Slow customer service — a problem the agency has struggled with in previous years — is likely to be much worse this year, said Pete Sepp, the president of the National Taxpayers Union.
Individuals, small businesses and human resource departments haven’t been able to get their questions answered while the taxpayer assistance lines were closed, Sepp said. The call lines will re-open during the filing season, but taxpayers are likely to have more questions this year following the changes in the law, he said.
Last year, the agency answered about 80 percent of the calls that were placed, but many of those were sent to automated recordings, rather than live humans, according to a report from the Taxpayer Advocate Service.
Slower Refunds
The IRS will continue to process refunds during the shutdown, a policy change that reversed the agency’s previous stance that it couldn’t issue refunds while the government is closed. But there could be more issues that cause delays to those payments as a slimmed down staff manages the full filing season.
Much of the filing and refund processing is done automatically, particularly for individual filers. However, if there are specific issues flagged in a return, it could be held for longer than usual so the agency can review it manually. Additionally, the IRS hasn’t said whether refunds to businesses or payments tied to audits from prior years will be issued during the shutdown.
For filers who claim the Earned Income Tax Credit or one of the subsidies for health insurance under the Affordable Care Act, refunds won’t be sent until at least Feb. 15 to give the IRS additional time to scrutinize those refunds for fraud.
Another issue to keep in mind: If you have an unpaid tax bill from a previous year, penalties and interest keep accruing on that balance even if you can’t get in contact with the IRS, said Brian Thompson, a certified public accountant at accounting firm Bailey & Thompson.
Technical Mishaps
Computer malfunctions have plagued the IRS in recent years as the agency expands its online systems built on 1950s-era technology and hackers become more adept. Last year, the IRS had to extend the filing deadline by a day after its website crashed on what was supposed to be the filing deadline.
IRS systems were also breached in 2015 and the personal data of more than 700,000 taxpayers was stolen by hackers. The agency has made a series of changes to its computer system to accommodate all the changes in the new tax law.
Still, taxpayers may face problems because many of the agency’s units will continue to be closed during the shutdown, Kerr said. For example, tax preparers may need to get information from a client’s previous year’s returns, but won’t be able to get permission from the agency to access that file.
No Paychecks (for Now)
The employees working during the shutdown aren’t getting paid. Historically, Congress has voted to approve back pay for all federal employees, regardless of whether they worked or were furloughed during the shutdown. But, until a funding deal is reached, workers won’t get paid, dampening employee morale.
At other agencies, including the Transportation Security Administration, some workers have been calling in sick at increased rates to protest working without pay. The National Treasury Employees Union, which represents IRS workers, filed a lawsuit saying that the administration is violating fair labor standards by not paying employees during the shutdown.
But a shutdown doesn’t mean that there’s an opening to skirt some of the taxes you owe, said Gordon Gray, the director of fiscal policy at think tank American Action Forum. Even if the agency is understaffed at the moment, they’ll be back to full force at some point.
“The law doesn’t change no matter who is minding the store,” Gray said. “You better believe that the IRS is going to want that money.”
