By Naveen Athrappully
Internal Revenue Service (IRS) Commissioner Danny Werfel warned that an impending shutdown of the federal government could negatively affect operations during the 2024 tax filing season.
“We have experienced shutdowns before. We have not experienced shutdowns in the middle of filing season. So there’s some uncertainty there,” Mr. Werfel told reporters on Friday. “We’ll have a variety of different carve-out elements that will allow us to maintain operations,” he said. However, a shutdown “will increase the risk that we don’t have as smooth a filing season as we intend to have.”
In November, President Joe Biden signed a stop-gap spending bill into law, which prevented a government shutdown at the time.
The bill extended government funding until Jan. 19 for some parts of the federal government—agriculture, veterans affairs, military construction, transportation, energy, and housing and urban development. For other departments, including the IRS, the funding will continue until Feb. 2.
Once a government shutdown is initiated, thousands of federal government employees other than those deemed essential would be put on furlough. None of these workers will be paid wages. They will only receive back pay once the agencies are funded again.
Mr. Werfel said that the IRS will do “everything in our power” to minimize disruptions caused by the shutdown. This includes asking authorities to keep certain operations running even if government spending is cut off. He did not clarify which employees would be furloughed in case a shutdown happens.
The 2024 tax season is officially set to begin on Jan. 29, the date on which the IRS will start accepting and processing returns for the 2023 tax year. The agency expects over 128.7 million individual returns to be filed by the tax deadline of April 15.
For residents in Maine and Massachusetts, the deadline is April 17 due to the Patriot’s Day and Emancipation Day holidays. Deadlines may also be extended if a taxpayer lives in a federally declared disaster area.
Reduced Funding
IRS is also facing the prospect of seeing a faster reduction in funds it secured under the Inflation Reduction Act (IRA) passed by President Biden in 2022.
The agency received $80 billion in funds from the Act. However, Republicans succeeded in cutting it down to $60 billion last year during debt-ceiling negotiations with Democrats.
The $20 billion reduction was supposed to be implemented as two $10 billion reductions each in 2024 and 2025. However, during recent negotiations to avert the impending government shutdown, Republicans succeeded in speeding up the reductions.
“The concessions we achieved will include an additional $10 billion in cuts to the IRS mandatory funding (for a total of $20 billion)” during fiscal year 2024, House Speaker Mike Johnson (R-La.) said in a Jan. 7 letter to his party colleagues.
Talking about the issue, Mr. Werfel said that even if the $20 billion reduction is implemented in 2024, the agency will still be able to go ahead with utilizing IRA funds per its plans, which include improving customer service, tax compliance, enforcement, and information technology.
“It will not impact our efforts until the later years,” he said, pointing out that the IRS still has $60 billion in IRA funds. “Our intent is to spend the money to have maximum impact in helping taxpayers in the areas that we’ve described.”
Targeting ‘Wealthy’ Americans
Mr. Werfel also commented on the IRS’ increased focus on wealthy individuals, saying that the agency is prioritizing audits for such people who have not filed their tax returns or paid their existing tax debts.
Earlier last year, the IRS collected $38 million from more than 175 high-income earners. In October, the agency announced it had collected $122 million from 100 more high-income earners, taking the total tax collected from such individuals to $160 million.
The 100 taxpayers were part of the 1,600 new high-income earners the IRS was contacting who “owe hundreds of millions of dollars in taxes,” the agency said at the time.
On Friday, the IRS commissioner said that the agency has assigned 900 out of the 1,600 cases to revenue officers and has so far collected $482 million.
Although the IRS claims that its increased tax compliance and enforcement actions aim to make wealthy taxpayers pay their due share, Republicans have questioned such claims.
In an April 18 letter to Mr. Werfel, Sen. Joni Ernst (R-Iowa) pointed out that the IRS’ multi-billion funding from the IRA was aimed to “enhance collections efforts toward American taxpayers and increase the IRS workforce to over 105,000 employees by 2025.”
“The strategic plan states in Part II, Objective 3.5 that IRS will pursue increased audit rates of any business earning more than $400,000 to enhance collections efforts towards large corporations and wealthy individuals,” she wrote.
The letter cited data from the Statistics of U.S. Businesses under the U.S. Census Bureau showing that the average small business employing about five workers had annual receipts of more than $424,000.
“It is abundantly clear that small businesses will bear the brunt of these enforcement efforts, not solely large corporations and the wealthiest taxpayers,” Ms. Ernst said.
In January last year, Rep. Buddy Carter (R-Ga.) introduced H.R. 25, or the Fair Tax Act, which seeks to replace the current U.S. tax code with a national consumption tax.
“Instead of adding 87,000 new agents to weaponize the IRS against small business owners and middle America, this bill will eliminate the need for the department entirely by simplifying the tax code with provisions that work for the American people and encourage growth and innovation,” he said at the time.
