Business and Individual Taxpayers Must File and Pay Taxes Despite the Shutdown
The federal government shutdown has now been in effect for a full two weeks! And while most federal government employees – including approximately 90 percent of those employed by the IRS – are furloughed, the IRS has made it clear that tax returns and payments that are due during the shutdown, must still be filed and paid on time!
That’s right! According to the IRS, even though the agency’s operations are limited during the government shutdown, the tax law remains in effect and all taxpayers should continue to meet their tax obligations as normal. But while taxpayers are expected to meet their obligations without delay, they won’t necessarily find it easy to get help if they have questions. And if a taxpayer is entitled to a refund – well, let’s just say he may be waiting a while.
Here’s what the IRS wants taxpayers to know about the impact of the shutdown on everything from tax filings and payments, refunds, notices, enforcement actions, audits, what type of help is available and where to find it. (Spoiler alert, since 90% of the IRS’ employees are on furlough, help isn’t likely to come from an actual human being.)
The October 15th Tax Filing Deadline for Extended Returns Remains in Effect
This past week, the IRS issued a news release which provided answers to common questions taxpayers might have about the shutdown’s impact on their tax obligations. In the news release, the IRS repeatedly points out that because the tax law remains in effect during the shutdown, “Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as they are required to do so by law.” (See, IRS News Release, "IRS Operations During The Lapse In Appropriations")
Last week, the IRS also issued a reminder notice in which it again emphasized that “taxpayers should continue to meet their tax obligations as normal”. As of the date of the notice, October 8th, more than 12 million individual taxpayers had not yet filed their 2012 income tax return. (See IRS IR-2013-80, "Reminder: Oct. 15 Tax Deadline Remains During Appropriations Lapse, Oct. 8, 2013")
This guidance is especially pertinent to small business owners. This is because most small businesses are structured as flow-through entities - an S corporation, partnership, or limited liability company (LLC). Typically, the flow-through entity must to close its books, file its own entity return, and issue owners a K-1 before the owner can file his or her personal tax return – meaning that many small business owners are likely to be part of the 12 million plus taxpayers whose extended returns are now due.
Not only are final returns due by midnight on October 15th, any remaining tax liability is also due. Keep in mind that filing an extension gives a taxpayer an extension of time to file their return, but isn't an extension of time to pay. Any tax liability owed was due on April 15th. That means taxes paid with an extended return will likely be subject to a late payment penalty and interest.
Since Taxpayers Have to File on Time, Can They Still File Electronically? Or Are Paper Returns Required?
The shutdown does not impact a taxpayer’s ability to file electronically, says the IRS release. As a matter of fact, the IRS is urging taxpayers to file electronically. The IRS release notes that most electronically filed returns will be processed automatically and that payments accompanying electronic tax returns will be accepted as the IRS receives them.
Also, even though taxpayers can still file a paper return, the IRS notes that the processing of paper returns will be delayed until full government operations resume, and adds that payments accompanying paper tax returns will still be accepted as the IRS receives them. Returns postmarked by the October 15th extended deadline will be considered timely filed by the IRS even though processing of the return may not occur until after the shutdown.
If a Taxpayer Is Owed a Refund, What Effect Will the Shutdown Have on Receiving that Refund?
So now for a bit of bad news - even though taxpayers must file their extended returns on time, the IRS is unable to process tax refunds during the shutdown. Therefore, taxpayers that are owed a tax refund will not receive their refund until sometime after government operations resume.
What about Other Tax Filings, Such as Corporate or Partnership Returns or Payroll Returns and Deposits?
Although the IRS’ efforts are primarily aimed at making sure that individual taxpayers with extended returns due on October 15th are well aware of their obligation to file on time, the IRS' 'news release reminds taxpayers that all other tax deadlines remain in effect. This means, for instance, that corporate or partnership returns with an original or extended deadline that falls within the shutdown period, must also be filed on time, as well as all payroll tax filings and deposits.
What About Tax Notices, Enforcement Actions or Scheduled Audits? What Impact Does the Shutdown Have on These?
According the the IRS, new levies or liens are not being issued during the shutdown. However, some taxpayers could receive a notice showing an October mailing date. The IRS points out that it’s standard practice for notices to be printed with a future date to take in account the mailing time prior to reaching the taxpayer. Therefore, even if a notice has an October mailing date, it was most likely mailed prior to the start of the shutdown.
The IRS also notes that other letters related to liens and levies – such as notifications that a taxpayer could potentially be subject to a lien or a levy at a future date – will continue to be automatically generated during the shutdown, but that these notices are not actual levies or liens; only a notification of potential future action. (Here’s a couple of interesting side-notes. First, it appears that automatic notices will continue to be churned out during the shutdown because a decision was made to keep the computer system that generates these notices, running. Shutting down this computer system would have meant the potential loss of taxpayer data. Here’s another note, because the vast majority of IRS employees are furloughed, taxpayers can’t simply pick up the phone and call a taxpayer representative to get a noticed resolved!)
But if a delinquency has progressed to the point where the IRS was prepared to tax enforcement action, whether that action will proceed during the shutdown depends on whether a non-criminal or criminal case is involved. The IRS notes that if a non-criminal case is involved, the IRS will only take immediate action if it’s necessary to protect the government's interest. But because most IRS Criminal Investigation employees are continuing to work during the shutdown (similar to other federal law-enforcement agencies), enforcement actions resulting from criminal cases will generally not be impacted by the shutdown.
As far as meetings or audits that were scheduled to occur during the shutdown, the IRS notes that taxpayers should assume these are temporarily canceled. However, this only means that the scheduled meeting or audit is delayed, not that it won’t ever occur. Taxpayers are being instructed that they will hear from the IRS to reschedule their appointments once normal operations resume.
What IRS Services Are Available for Taxpayers that Have Questions or Need IRS Assistance?
As I “hinted” in the spoiler alert, taxpayers that have questions or need assistance won’t be able to speak to an actual IRS employee – they’re essentially all furloughed. This also means that IRS walk-in offices, where taxpayers could normally get live assistance, are also closed.
So where can taxpayers find help? Taxpayers can get pre-recorded assistance via the IRS automated applications by calling 800-829-1040. This line will remain open during the shutdown. The official IRS website, www.IRS.gov, will also remain available, although some interactive features may not be available. The IRS Free File partners will also continue to accept and file tax returns. (Note, you'll find links to IRS resources are at the end of this article.)
Independent tax software companies, such as Intuit (the maker of TurboTax) will also continue to accept and file tax returns. Many tax software companies also have extensive help and resources available to answer taxpayer questions.
So although taxpayers will be able to find answers to tax questions and get their returns filed, any issue that requires speaking to an IRS tax representative will simply have to wait!
Also see these IRS resources:
- IRS Website: www.irs.gov
- IRS New Release, IRS Operations During The Lapse In Appropriations, October 8, 2013
- IRS IR 2013-80, Reminder: Oct. 15 Tax Deadline Remains During Appropriations Lapse, October 8, 2013
- IRS FreeFile Webpage
- IRS IR 2013-75, IRS Provides Tax Relief to Victims of Colorado Storms, September 16, 2013 (Special Note, taxpayers impacted by the Colorado storms may be able to file beyond the October 15th deadline. See the IR 2013-75 for more information.)
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- Missed my last post? Catch it here: "Health Care Marketplaces Open October 1st - Did You Notify Your Employees?"
- Future topics I’ll be blogging on? More on what Obamacare Means for Small Business, An Update on Those Controversial Amazon Laws, What Small Business Needs to Know about the Demise of DOMA, Taxing the Cloud, The Best States for Small Business, Stock Options and Small Business, and so much more.
