According to a recent article in the Wall Street Journal, the IRS is one of the government agencies that now lacks funding due to the most recent government shutdown. A prolonged government shutdown would likely delay billions of dollars in income-tax refunds.
What Happens to the IRS During a Government Shutdown?
During a shutdown, the IRS can continue activities that protect government property, and the agency may bring in more workers soon to prepare for the income-tax filing season. Even during a shutdown, the agency still processes some tax returns that include payments, keeps computer systems running and continues criminal investigations. But the IRS generally doesn’t conduct audits, respond to taxpayer questions outside the filing season or—brace yourself—pay refunds.
For many Americans, including the majority of our clients, the tax refund is the single largest financial event of the year, and the people who tend to file early in the season are taxpayers who count on large refunds to pay down debt, catch up on bills or make major purchases. Those are disproportionately low-income households that benefit from the earned-income tax credit and other provisions that give them no income-tax liability or a net benefit from the income-tax system.
What Will Happen to the Economy?
This will likely have a detrimental effect on the economy as a whole. For comparison, let’s look at what effect tax refund season had on the economy in 2018. By Feb. 2, 2018, the IRS had paid $12.6 billion in refunds to more than six million households. By Feb. 16, the IRS had paid $101.2 billion to nearly 32 million households. And by March 30, the IRS had paid $212 billion to 73 million households. For perspective, in 2018, the IRS began accepting tax returns on January 29th. That means within 19 days of allowing tax returns, the IRS had already paid over $101 billion to nearly 32 million households. That is roughly $3,200 per household.
“We’re in uncharted territory as each day gets longer,” said Mark Steber, chief tax officer at Jackson Hewitt Tax Service Inc.
Compounding this shutdown is the change in the tax laws that goes into effect this year. “You worry about the filing season because of the tax-law changes anyway. So, there’s no way that a shutdown is helpful,” said Steven Miller, a former acting IRS commissioner. “The risk was already high as to whether the service could already get done what the service needed to get done with the paltry resources they already have.”
Contact a Trusted Bankruptcy Attorney for Financial Help
At the many Bond & Botes offices, we understand that tax season is an important time for you to be diligent with your money. If you are entrusting the government to help you out of your financial situation, bankruptcy may actually be an option for you. Please contact our offices to set up a consultation to discuss your situation today.