In a Shutdown, IRS Will Take Your Money, but Give No Refunds

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WASHINGTON—A prolonged government shutdown would likely delay billions of dollars in income-tax refunds.

The Internal Revenue Service is one of the agencies that now lacks funding, and the U.S. tax collector has been operating with about 1 in 8 employees under the shutdown plan it uses outside the tax-filing season.

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.

A shutdown that gets resolved within a few weeks would have little ultimate effect on taxpayers, but lawmakers have made little or no movement toward a deal. That stalemate raises the prospect of an unprecedented extended closure during the individual income-tax filing season, which typically starts in mid-to-late January. The IRS hasn’t announced a start date yet for the 2019 filing season, the first under the tax law that Congress passed in 2017.

“We’re in uncharted territory as each day gets longer,” said Mark Steber, chief tax officer at Jackson Hewitt Tax Service Inc.

If the shutdown drags on, early filers won’t receive the refunds they’re expecting, a gap that could put pressure on congressional negotiators and President Trump to reach a deal.

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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 many Americans, 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.

In turn, retailers count on those households spending their refunds in February. People who tend to owe additional taxes typically wait until near the mid-April deadline.

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In the meantime, taxpayers may face more difficulty getting answers out of the IRS because the agency doesn’t respond to taxpayer questions outside the filing season. The government may add people back to staff its toll-free phone lines once filing season starts, though it hasn’t provided details yet.

“The commissioner’s going to have to make a call: What does this mean for the beginning of the filing season?” said Mark Mazur, who was the top Treasury tax-policy official under President Barack Obama.

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