On Jan. 20, the federal government shut down right in the middle of tax reporting season. The brief shutdown, likely to be resolved by Jan. 23, offered some insight into what happens when the IRS loses funding during reporting season.
While the latest shutdown will likely be short, another could loom, as the proposed funding plan to end the stalemate only runs through Feb. 8.
During the shutdown, the IRS has still been processing 1099 forms and other reported tax information. Tax Notes noted on Jan. 22 that the IRS has kept more employees available than it did in previous shutdowns, although many of them have worked without pay while waiting for Congressional reimbursement.
In previous shutdowns, Tax Notes reported, the IRS furloughed 87 percent of employees. The plan for the latest shutdown called for unpaid furloughs for about 57 percent of the agency’s staff.
Reporting Functions Not Guaranteed
Reporting season was very likely the reason the IRS has maintained much higher staff levels for this shutdown, but a prolonged shutdown might ultimately affect reporting. According to Tax Notes, if a shutdown lasts longer than five days, the agency will “reassess personnel needs and activities.” At that point, a reporting shutdown is theoretically possible.
The IRS has closed phone service for taxpayers and tax practitioners, along with a few other functions, during the most recent stoppage. But in 2013, a government shutdown lasted 16 days and cost about $1 billion per week, according to Tax Notes. The February date for a new funding agreement now casts a shadow over the likely resolution of the January stoppage.
Of course, Sovos clients can turn to Sovos for updates and direction on how a shutdown might affect reporting season and which actions they should take in response.
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