To help get these questions answered, I'd like to clear up some misconceptions about the government shutdown. Specifically, let's talk about what you can expect, at least for now, about your tax returns.
Here are the top three myths we need to discuss:
1. The IRS is closed.
Not completely true.
The Internal Revenue Service was one of the federal agencies that didn't have a funded budget to operate for the 2019 fiscal year. In fact, the funding the IRS had expired on December 21, 2018.
However, the IRS has since remained open under a contingency plan, which includes operating with only 12 percent of its staff. It also includes the ability to accept all electronically-filed tax returns, once that functionality is updated for the new filing year, and some tax returns filed via mail.
2. Even if the government were open, the IRS wouldn't be accepting e-filing anyway.
Both true and false.
The IRS generally begins accepting electronically-filed tax returns in late January, after closing this functionality for a short period of time. This generally takes place between late November and early January--so right now, in other words. It's supposed to help the IRS clear enough time to update their systems and update their forms each year.
On January 7, the IRS announced that it will begin accepting 2018 tax returns on Monday, January 28, 2019.
3. If the government remains shutdown, you won't receive a refund from the IRS.
On the heels of the government shutdown announcement, the IRS has stated that in addition to also accepting 2018 tax returns on January 28, it will issue refunds--despite prior statements to the contrary. They also plan on bringing back a large portion of their furloughed workers in order to operate as normally as possible.
While this will allow money to be used to provide tax refunds, the furloughed workers will not be paid until the shutdown comes to an official end. It's unclear how this will impact operations. A temporarily understaffed and unpaid IRS will still be understaffed and unpaid could mean delays or processing glitches aren't out of the question.
What's next for business owners this tax season?
As of right now, it's expected for tax season to begin as normal with the ability to e-file beginning on January 28th--assuming the IRS is able to finish all system updates and the contingency ultimately provides for it.
The details of the contingency plan have not yet been announced. I've seen plenty of experts urging some degree of caution, since past shutdowns have resulted in delayed tax refunds. The Trump Administration's decision to open the IRS for refunds could also violate the Antideficiency Act, a 1982 piece of legislation that keeps federal employees from spending more than what's been approved by Congress.
Tax software vendors must also finalize all system updates to their products, which could take additional time depending on how efficiently the IRS operates in the coming weeks. The IRS generally finalizes its technical specifications between late November and early January. If there are minor changes to those specifications for the new tax year, vendors may need time to code the updates, test them, then migrate them to their production code. Given that this is all significantly behind plan, it could result in delays from the software vendors themselves as well.
A word to the wise: If you're a business owner, start preparing now. Gather your tax documents and begin the filing process with your tax advisors as you would in any other year. This is more important than ever with the sweeping changes to the tax rules this year due to the Tax Cuts and Jobs Act (TCJA) passed in December of 2017, many of which will go into effect with your return for tax year 2018.