IRS Faces Massive Furloughs, Threatening Crucial Tax Services Amid Possible Government Shutdown

The Internal Revenue Service (IRS) is girding up for massive furloughs that could hamper important taxpayer services, as the threat of a government shutdown looms large.

What Happened: The IRS plans to furlough a sweeping majority of its workforce, around 60,000 employees, if the government shuts down on Sunday, as reported by The Washington Post. Despite the $80 billion boost from the Inflation Reduction Act, recent federal guidelines have clarified that these funds cannot be used to cover salaries during a shutdown.

Such a shutdown could impede key services, like processing of late tax filings. Charles Rettig, former IRS commissioner, cautioned that most IRS employees would be unreachable during the shutdown, and the potential impact on recruitment efforts should not be underestimated.

Reacting to this, the American Institute of CPAs has urged the IRS to reconsider its furlough decision, warning of potential delays in the processing of late returns for the 2022 tax season.

Although the potential shutdown looms, long-term modernization projects funded by the Inflation Reduction Act may proceed. Around 30,000 employees can continue working on these projects, but customer service could be significantly curtailed.

The IRS had managed to answer 90 percent of its phone calls, eliminate its backlog of overdue returns, and introduce new online taxpayer tools thanks to the Inflation Reduction Act. This progress is now under threat due to the potential mass furloughs.

Despite these challenges, Daniel Werfel, the IRS commissioner appointed by President Biden, remains committed to transforming the IRS into a "world-class customer service operation," although this goal becomes more elusive if the agency cannot stay operational during a shutdown.

See Also: Tax Cuts From The Bush And Trump Eras Have Cost The Government $10 Trillion It Now Owes

Why It Matters: The looming shutdown has forced other government agencies to take similar actions. As per Benzinga Federal Emergency, the Federal Emergency Management Agency (FEMA) plans to withhold $8 billion in disaster recovery funds, impacting 27 states and territories, and the U.S. State Department is preparing for a possible shutdown.

This situation reflects the broader uncertainty and potential economic impacts of the government shutdown, which could severely affect various segments of the U.S. economy.

Photo Courtesy Postmodern Studio On Shutterstock.com

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