Tax Analysts®Tax Analysts®

My Subscriptions:

Featured News

October 2, 2013
Headaches Abound for Practitioners, Public as Shutdown Enters Second Day
by William Hoffman

Full Text Published by Tax Analysts®

The IRS's decision to furlough all employees of the Taxpayer Advocate Service during the federal government shutdown could cost some taxpayers their property or even their lives, said Nina Olson, speaking as a private citizen and not in her capacity as the National Taxpayer Advocate, on October 1.

"What we have is, during the shutdown, the government can harm the taxpayer with impunity and the taxpayer has no redress," said Olson. "I don't know how that passes constitutional muster."

The advocate service routinely handles cases of distraught taxpayers who threaten suicide if their disputes with the IRS cannot be resolved expeditiously, as well as cases in which a lien on property ties up funds a taxpayer needs for lifesaving medication or medical procedures, Olson said.

But Olson said the IRS Office of Chief Counsel, in a contingency plan dated September 26 but updated September 30, interpreted the Antideficiency Act -- the law that governs agency operations during a lapse in annual appropriations -- in such a way that IRS employees providing services to those kinds of taxpayers would not be exempted from furlough. The Antideficiency Act allows activities necessary to safeguard human life or protect government property in emergencies to continue even during a shutdown.

The Office of Chief Counsel directed a reporter's call for comment to the IRS's media relations department, which is closed during the shutdown. The IRS special counsel to the national taxpayer advocate program also is closed during the shutdown. A call to the IRS associate chief counsel for general legal services, which deals with ethical questions, did not return a call before press time.

Millions of Extensions at Risk

Elsewhere in the practitioner community, tax professionals said the approaching October 15 deadline for filing extensions may affect several million taxpayers with outstanding returns and anticipated refunds.

Andrew Stadler, an enrolled agent and CEO of Stadler & Co. in Terre Haute, Ind., said he was cautioning late filers just hours before the midnight shutdown September 30 that their refunds could be delayed days or weeks depending on how long the budget standoff continues.

Stadler noted that while IRS automated systems continue to crank out notices and liens, more than 90 percent of Service employees have been furloughed. That means taxpayers who receive those IRS documents but dispute their accuracy -- as many as 60 percent are wrong, he said, based on his own practice's experiences -- will have no one at the Service with which to contest the claims.

Stadler recommended taxpayers with unresolved disputes hire an enrolled agent, CPA, or attorney to document thoroughly both the IRS claims and the taxpayer's position, then mail the information back to the Service. "If you think you don't owe, send a letter with an explanation -- not a check," he said. "Make sure you have a valid basis for why you don't owe."

Jeffrey Porter, chair of the American Institute of Certified Public Accountants' Tax Executive Committee, said that audits and examinations scheduled during the shutdown will need to be rescheduled, because most IRS employees handling those duties have been furloughed.

That increases the stress and anxiety of practitioners as well as their clients, Porter said, because both must still be ready on short notice in case the shutdown ends and regular IRS business resumes, perhaps in as little as a few hours before a scheduled meeting.

Taxpayers who procrastinated when the IRS sent notices before a levy, only to find themselves up against a tight deadline to settle their disputes, might find they can't get a hold put on their levy as they might if Service employees were still available by phone, Porter said.

He said the practitioner priority hotline and many other direct services that practitioners use to negotiate with the Service have gone dark for the duration of the shutdown.

Taxpayer Education a Priority

With the government shutdown just one day old, practitioners said client education is the highest priority right now. Kevin Brown, a former acting IRS commissioner now at PricewaterhouseCoopers LLP, said things get more complicated if the shutdown lasts longer than a few days.

Linda Stiff, another former acting IRS commissioner now at PwC, said she's been making clients aware that most IRS enforcement -- audits, collections, appeals -- have gone dark. She said she's advising clients to keep an eye out for when IRS operations resume, so they're not caught unaware when their deadline clocks resume.

"A lot of people had a hard time imagining this would happen," Stiff said, "and then that it would continue."

Amy Berkowitz of the National Community Tax Coalition said low- and moderate-income taxpayers may be among those hardest hit because IRS-funded taxpayer assistance centers that offer free services are shuttered for the duration of the budget fight.

"This closure is also during the training time for next tax season, so we are unable to work with the IRS [Stakeholder Partnerships, Education, and Communication] office during the shutdown," Berkowitz said. Funds from the Volunteer Income Tax Assistance grant program also could be delayed, she said.

Gene King, a spokesman for H&R Block, said, "Clients who mail their returns or request a paper check refund could experience delays. Some taxpayers who are required to file paper returns should have them postmarked by October 15, as the postal service will remain open."

Electronic filers should see fewer delays than paper filers -- at least those whose returns are in order and are accepted without question by the IRS. However, Porter noted that e-filed returns are sometimes rejected by Service computers, in which case a software vendor might need to contact an IRS employee to fix the glitch. That might be impossible during the shutdown, with so many IRS workers furloughed, Porter said.

Melissa Labant, director of tax advocacy at the AICPA, said the organization asked the IRS before the shutdown to consider using additional staff at select call centers, and perhaps extending service hours, to handle an expected rush of questions left over from the shutdown. But the CPA group did not receive a response before the last continuing resolution ran out September 30.

OIC Hearing Canceled

At press time, lawmakers did not appear to be making progress toward reaching a deal to fully fund the government. Instead, the House was preparing to vote on legislation to fund parts of the government, such as national parks, veteran affairs, and the District of Columbia.

Because of the shutdown, the IRS canceled its October 1 hearing on proposed regulations amending the rules on user fees for installment agreements and offers in compromise.

No plans have yet been made to reschedule the hearing and no other hearings have been canceled so far as a result of the shutdown, according to Oluwafunmilayo Taylor of the IRS.

The next IRS hearings are scheduled for November 18 and November 19 and will address proposed regulations on healthcare coverage information reporting for large employers and information reporting of minimum essential healthcare coverage.

Some Still on the Job

While most IRS operations are closed for the duration of the budget impasse, some work continues.

According to the updated IRS contingency plan, 8,824 IRS employees (or 9.3 percent of the total 94,516) remain on the job during the shutdown.

That includes about 3,500 in the Criminal Investigation division; 139 in the Large Business and International Division; 112 in the Return Preparer Office; 317 in the Small Business/Self-Employed Division; 20 in the Tax-Exempt and Government Entities Division; 2,371 in the Wage and Investment Division; and four in the Affordable Care Act Office.

Even when those offices are open, problems and delays can be expected, tax professionals said.

Douglas M. Mancino of Hunton & Williams LLP said exemption application processing delays are problematic for many organizations, including several clients he's submitted applications for. He's expecting delays to last as long as the shutdown does.

"I just about two weeks ago submitted two very substantial exemption applications in connection with a major corporate transaction in the healthcare field and fully expect that those will be sitting on somebody's desk gathering dust until they're back in the office once the government is restarted and refunded," Mancino said.

Eve Borenstein of the Borenstein and McVeigh Law Office LLC said the good news is that in the last week the IRS advanced by a month the application waiting the longest for assignment to a reviewer -- to May of 2012. The bad news, she said, is it's likely that there are thousands of applications that were filed between June and September of 2012, and their wait time now exceeds a year. She criticized those long delays.

"Congress needs to be dedicating more resources, not less, to the Exempt Organizations Division," Borenstein said. "That charitable entities have their 501(c)(3) determination requests on lengthy holds -- government shutdown or not -- is egregious."

T.J. Sullivan of Drinker Biddle & Reath LLP recalled working as the special assistant for healthcare in the former IRS Office of Assistant Commissioner (Employee Plans and Exempt Organizations) during the 1996 shutdown. Sullivan said the assistant commissioner was tasked with identifying which IRS EO employees across the country were "essential" under Office of Personnel Management guidelines. The answer was that only the individual in the mailroom who opened incoming correspondence and took out the checks for deposit to the U.S. Treasury met those guidelines, he said.

"Though a shutdown or furlough has real consequences for federal employees and their families and for those dependent on the government, I learned right then and there that if you tell the IRS 'the check's in the mail,' you'd better mean it," Sullivan told Tax Analysts.

Andrew Velarde, Fred Stokeld, and David van den Berg contributed to this article.

About Tax Analysts

Tax Analysts is an influential provider of tax news and analysis for the global community. Over 150,000 tax professionals in law and accounting firms, corporations, and government agencies rely on Tax Analysts' federal, state, and international content daily. Key products include Tax Notes, Tax Notes Today, State Tax Notes, State Tax Today, Tax Notes International, and Worldwide Tax Daily. Founded in 1970 as a nonprofit organization, Tax Analysts has the industry's largest tax-dedicated correspondent staff, with more than 250 domestic and international correspondents. For more information, visit our home page.

For reprint permission or other information, contact