US shutdown: Fears of tax chaos loom as IRS readies for filing from Monday

The US Internal Revenue Service is due to start sifting through an avalanche of annual tax returns on Monday, with a workforce hard-pressed by the partial government shutdown and Congress uncertain how to avoid chaos for taxpayers.

In what could be a politically explosive chapter in the shutdown saga that already is 34 days long, analysts said at least one in 10 taxpayers could face problems with their returns due to the IRS funding shortfall. The analysts said the situation may worsen if the impasse drags on even longer.

The annual tax filing season for Americans to file their 2018 returns is scheduled to open on Jan. 28 and run through April 15, the annual filing deadline. The IRS has designated more than 46,000 employees, or nearly 60 per cent of its workforce, to work without pay on jobs such as staffing taxpayer help lines and processing tax returns and refunds.

"People have figured out how explosive it could be, in terms of not being able to pay down Christmas debt," said Representative Richard Neal, Democratic chairman of the House of Representatives Ways and Means Committee, which oversees tax policy.

"But when you call back 40,000 people arbitrarily, without any guarantee of remuneration, and ask them to pay for gas and things of that sort, their lives aren't getting any easier because of it," Neal told reporters.

Lawmakers on Neal's committee hoped to learn details about the situation at a hearing with Treasury Secretary Steve Mnuchin this week. But it was cancelled by Neal after Mnuchin, a top adviser to President Donald Trump, declined to attend. Neal said he would propose more dates for Mnuchin to consider and hoped a hearing could be set for as early as next week.

"The fact that they've called people back is an indication of a chaotic situation," Representative Bill Pascrell, a committee Democrat, said of the IRS. "It's not just getting returns back to people in time, but getting the taxes reviewed in time. That's very, very important."

Representative Kevin Brady, the panel's top Republican, said lawmakers need to hear about the shutdown's impact on the IRS from the administration. "This is a bipartisan area of interest, to make sure this tax-filing season goes well," Brady told reporters.

The IRS issued a statement saying it continues to prepare for next week's start of the tax-filing season by recalling employees.

Most taxpayers filing electronically or using professional preparers should not face major problems, but delays could await people with returns flagged for potential issues and lower-income filers who use IRS assistance, analysts said.

There could also be problems within the agency as it tries to guide taxpayers through a new tax policy landscape created by Trump's sweeping 2017 tax overhaul.

"The longer you make people work without paying them, the more problems you're going to have," said Howard Gleckman, a senior fellow at the nonpartisan Tax Policy Center think tank.

The National Treasury Employees Union, a union that represents IRS employees and has sued in court to prevent the government from forcing them back to work without pay, said increasing numbers of workers are facing financial hardship as bills mount.

Representative Vern Buchanan, a Florida Republican, said he expects Trump and Congress to reopen the government within the next week or so. "If it doesn't, we're going to have to find a way to work with people financially, because there are a lot of people living paycheck to paycheck," Buchanan said.