The government shutdown is hampering the Internal Revenue Service’s ability to prepare for the first filing season under the new Republican tax law, complicating the work of the agency tasked with implementing the biggest overhaul of the tax code in three decades.
The IRS has announced it will recall more than 30,000 unpaid workers for tax filing season, scheduled to begin later this month, bringing agency staffing levels close to 60 percent of its regular level. Congress also appropriated two years of funding for the implementation of the new law, creating a team at IRS whose work has been unimpeded by the lapse in appropriations.
But the longer the shutdown goes on, the more vexing the rollout of the new law becomes. Tax practitioners and experts say they are worried about what they see as a series of hurdles that could undermine what several described as a thus far surprisingly smooth rollout of the law.
“It is unfortunate timing,” said Alan Viard, a conservative economist at the American Enterprise Institute, a right-leaning think tank. “There’s a lot of things about this law people don’t understand yet, and they will be calling trying to get answers.”
The shutdown poses a number of challenges in implementing the new tax code. The IRS had to postpone a hearing on “Opportunity Zones,” part of the tax law intended to draw investment in poorer areas across the country. Most of the administrative staff responsible for hiring new IRS employees and replacing retiring ones are not being recalled, and neither are those responsible for arranging for travel for agents and other IRS officers, said Mark W. Everson, former IRS commissioner and now a vice chair of the tax consulting firm Alliantgroup.
The law, signed by President Trump at the end of 2017, dramatically cut taxes for corporations. It also cut income tax rates across the board, though nonpartisan analyses have found the law overwhelmingly benefits the highest-income taxpayers. The law also restructured many of the deductions individuals and businesses use to lower their tax bills — a rewrite that requires agency officials to adjust to a famously complex set of rules.
Thousands of IRS employees had been in the process of being trained in the new tax code when the shutdown occurred, as the IRS had to update hundreds of forms to reflect the new tax law. Some accountants and tax lawyers also report not being able to get answers to the questions they have, particularly regarding the new pass-through deduction, as their clients press for answers on how to structure their business operations.
Morale among IRS employees is low and will continue to suffer as the shutdown goes on. Unpaid IRS employees have reported struggling to pay for gas to get to work and for food for themselves and their families, while also having to pay parking fees at work despite lacking income.
“There’s going to be stress for companies, stress for individuals and stress for the IRS,” Everson said. “This is an agency that was already stretched thin, and the resources were already drawn down significantly in terms of systems and people. It’s going to have a myriad of ramifications.”
Republicans in Congress have steadily chipped away at the IRS’s budget over the past decade, although they did give it a small funding boost last year. Between 2010 and 2017, the IRS lost about 18,000 full-time employees — or nearly a fifth of its workforce — amid an 18 percent budget cut, after adjusting for inflation.
During the 2018 tax filing season, only about 4 in every 10 callers to IRS hotlines successfully reached a live operator to answer questions about their taxes. Last spring, the IRS’s computer systems crashed, forcing the agency to postpone the filing deadline by an additional day.
An audit by the Treasury Department’s inspector general released in September said the IRS has missed deadlines in fixing its information technology systems in time for the new tax code and failed to hire enough new employees to accommodate the greater workload.
The IRS needs 542 full-time workers to implement the new tax law, but as of this June had only tasked 117 with doing so, the audit found.
Republicans on Capitol Hill expressed confidence that disruption from the shutdown to the rollout of their tax law would be minimal.
“They’ve had a year to go through what they can go through for implementation, so I am not concerned about that,” Sen. Roy Blunt (R-Mo.), chairman of the Senate Republican Policy Committee, said of the IRS. “If the implementation problems hadn’t been anticipated by now, they weren’t going to be anticipated until people start actually filing their taxes.”
Several tax lawyers and accountants said they had been, up until the shutdown, pleased with the pace and speed with which IRS officials had moved to provide guidance on some of the more vague parts of the tax law.
But that hard work could be at least partially set back by the shutdown. About 3 million people use the IRS’s walk-in taxpayer assistance centers in a given year, with more than 30 million trying to have their calls answered by someone on the IRS help line. The assistance centers are expected to remain closed for filing season, while the call lines will be up but are expected to have even longer wait times than usual.
“They were doing a very good job. Everyone had been commending them for working very quickly under very difficult circumstances,” Richard Lipton, a lawyer at Baker McKenzie in Chicago, said of the IRS. “But now we need guidance, and a lot of us have questions nobody can answer because we can’t reach anybody.”