It is hoped that Congress and President Barack Obama are able to avoid the potential for future government shutdowns. Allowing shutdowns is not an efficient way to run the government: Shutdowns disrupt the economy, people's lives, and government operations. There are costs to the nation's economy, costs to the federal employees furloughed, impacts to federal government programs and services, and disruptions of grants to state and local governments. IRS operations and taxpayer rights are likewise significantly affected by the turmoil of a shutdown.
Since 1976, the federal government has shut down 18 times, for periods ranging from one to 21 days, the latter occurring from Dec. 16, 1995, to Jan. 6, 1996. The main issue causing that shutdown was disagreement over domestic spending cuts for fiscal year (FY) 1996. The next government shutdown occurred in October 2013 and lasted for the first 16 days of FY 2014. Disagreement over funding of the health care reforms in the Patient Protection and Affordable Care Act of 2010, P.L. 111-148, was the main cause of that shutdown. Previous shutdowns have been caused by disagreements over deficit reduction, military spending, and abortion funding.
Most recently, disagreement over funding for Planned Parenthood was largely to blame for delaying a final spending plan for FY 2016. The signing of the Bipartisan Budget Act of 2015, P.L. 114-74, on Nov. 2 seemed to have averted the threat of a shutdown, but there was still disagreement over issues attached to spending bills that needed to be passed to avoid a shutdown before the expiration of a continuing resolution that funded the federal government through Dec. 11. Those issues had not been settled as of this writing.
Federal employees use a significant amount of time and energy to plan for a potential shutdown even if one does not occur. Often, the Office of Management and Budget (OMB) does not know until the last minute whether an appropriations bill or a continuing resolution will be passed by Congress and signed by the president to avoid a shutdown. By the time a spending bill is signed, agencies will have started planning for a possible shutdown. They must evaluate which employees will be furloughed and which ones will continue to work in a nonpay status. Identifying which activities are excepted, allowing federal employees to continue to work in a nonpay status, is challenging. In 1980 and 1981, Attorney General Benjamin Civiletti provided guidance indicating that exempt activities include those connected to "the safety of human life or the protection of property."
According to the 2014 Congressional Research Service report Shutdown of the Federal Government: Causes, Processes, and Effects, the largest direct cost of a shutdown is the payroll expense related to the lost work for furloughed employees and the costs related to catching up on the backlog of work that accumulates while the employees are on furlough. The furloughed employees are not automatically paid for the furlough period unless Congress passes a resolution to that effect.
How do IRS functions relate to the safety of human life and the protection of property to allow them to continue during a shutdown? According to the National Taxpayer Advocate Fiscal Year 2015 Objectives Report to Congress, the IRS was able to perform the functions necessary to "protect statute expiration/assessment activities, bankruptcy or other revenue generating issues." The following are some of the compliance and enforcement actions taken by the IRS during the 2013 shutdown:
- Reducing IRS liens to judgments or enforcing liens with respect to property;
- Filing public notices of federal tax lien;
- Levying upon financial accounts, including Social Security benefits, and other property; and
- Garnishing wages.
The report highlights the impact of a government shutdown on the services the Taxpayer Advocate Service (TAS) provides. Prior to the 2013 shutdown, the IRS had considered some TAS employees to be exempt from furlough, as they were necessary for the "protection of statute expirations, bankruptcy, liens and seizures (ensuring statutory deadlines are met)."
OMB guidance indicates that Treasury's tax-related activities are excepted. However, all TAS employees were furloughed in the 2013 shutdown, based on the IRS Chief Counsel's evaluation of the Antideficiency Act (ADA). According to the TAS report, the Chief Counsel recognized only risks to public health and protection of government property. The TAS believes it is reasonable to interpret the ADA to except employees who ensure the IRS's actions to protect government revenue do not create significant risk to the safety of human life or property of the taxpayer.
The TAS believes the furlough violated taxpayer rights. During the 2013 shutdown, the IRS was allowed to continue enforcement activities even though taxpayers were unable to seek the TAS's support in protecting their rights.
According to the TAS report, IRS enforcement personnel opened the TAS's mail during the furlough—a violation of the TAS's statutory confidentiality rules. The IRS Restructuring and Reform Act of 1998, P.L. 105-206, included changes to ensure that the TAS would be viewed as an independent and impartial voice for the taxpayer within the IRS. Congress also added a requirement that the TAS maintain independent communications with taxpayers that are not required to be disclosed to the IRS.
The national taxpayer advocate is suggesting that the IRS reconsider its position and revise its shutdown plan to comply with the Taxpayer Bill of Rights, provide that essential TAS employees are excepted employees, and protect taxpayer confidentiality when it is necessary for IRS employees to open taxpayer correspondence addressed to the TAS.
According to the CRS report, the following activities were interrupted during the 2013 shutdown since they were not determined to be exempt:
- Income verification by financial institutions to help determine creditworthiness of prospective borrowers;
- Processing tax refunds and responding to taxpayers' questions;
- Operation of taxpayer service centers and call sites; and
- Activities intended to identify noncompliance with tax laws and collect unpaid taxes.
The Social Security program is generally exempt from a government shutdown since it is an entitlement program funded by laws other than the annual appropriation acts. While funds are available for employees to make payments to beneficiaries under the program, other employees might not be considered exempt. For example, in the 2013 shutdown, the issuance of Social Security cards was suspended. In the 1995-1996 shutdown, the reduction in staff to only make payment to beneficiaries caused a halt in the processing and payment of new entitlement claims. And telephone calls from beneficiaries who needed to change their addresses before their next check was mailed went unanswered. During the 1995-1996 shutdown, employees previously furloughed were called back for direct service work to include processing new claims for Social Security benefits.
During the October 2013 shutdown, the Department of Homeland Security shut down the E-Verify system that allows employers to check prospective employees' immigration status. Employers were thus unable to determine whether potential hires could legally work in the United States.
Even state and local governments are affected if they rely on federal aid to fund projects and provide services that benefit communities and individuals. The CRS report indicates that state and local governments would need to decide whether they would continue a project without federal aid and wait to see whether the federal government funds it when a shutdown ends. This can be very risky for state and local governments.
Government shutdowns are harmful to many federal operations, including the protection of taxpayers' rights. Regardless of the IRS Chief Counsel's interpretation of exempt activities, the best way to ensure the protection of taxpayers' rights is for politicians to find a better way to resolve their disagreements than through the continuous threat of a shutdown.
Patricia Thompson is a tax partner with Piccerelli, Gilstein & Co. LLP in Providence, R.I. She is also a past chair of the AICPA Tax Executive Committee. She is a member of the AICPA IRS Advocacy & Relations Committee. For more information about this column, contact Ms. Thompson at email@example.com.