IRS chief says government shutdown would likely disrupt US tax filing season

By David Lawder

WASHINGTON (Reuters) – A U.S. federal government shutdown in coming weeks would likely disrupt the soon-to-start tax filing season for 2023 income, the head of the Internal Revenue Service said on Friday, even as the agency takes some steps to ensure that tax collections continue.

“We have experienced shutdowns before. We have not experienced shutdowns in the middle of filing season. So there’s some uncertainty there,” IRS Commissioner Danny Werfel told reporters.

He said the IRS “will do everything in our power” to minimize such disruptions, including by invoking authorities to maintain certain operations if government spending authority lapses later in January and in February.

“We’ll have a variety of different carve-out elements that will allow us to maintain operations,” he said, but a shutdown “will increase the risk that we don’t have as smooth a filing season as we intend to have.”

Werfel did not specify which employees would be furloughed during a shutdown. The agency would face a lapse in appropriated funds if Congress fails to pass a new spending measure by Feb. 2, under a two-tiered continuing resolution.

The IRS is under pressure to continue improving taxpayer services, including reducing telephone hold times for people with questions about their tax returns, as congressional Republicans seek to claw back more of the $80 billion in IRS modernization funding that Democrats approved in the 2022 Inflation Reduction Act.

A deal that sets top-line spending limits for federal agencies would accelerate a $20 billion reduction in those funds over one year instead of two years as agreed last June.

But Werfel said that the shift would still allow the IRS to maintain its investment plans to improve customer service, information technology and tax compliance and enforcement.

“It will not impact our efforts until the later years,” Werfel said, adding that the agency still has $60 billion from the 2022 Inflation Reduction Act to improve collections and taxpayer service.

“Our intent is to spend the money to have maximum impact in helping taxpayers in the areas that we’ve described,” he said.

This would allow better access for taxpayers and continue momentum in finding areas where wealthier taxpayers are shielding income and not paying taxes owed, and he hopes that the “positive impact” from these changes will prompt lawmakers in future years to restore those funds.

Werfel said that the IRS was continuing to prioritize audits for wealthy individuals who have not filed tax returns or paid recognized tax debts.

After an initial success of collecting $38 million from more than 175 high-income taxpayers, Werfel said that the IRS is pursuing 1,600 other wealthy taxpayers. The IRS has assigned over 900 of those cases to revenue officers, with $482 million collected so far.

(Reporting by David Lawder, Editing by Louise Heavens)