Government Shutdown Creates Hurdles for Taxpayers
The ongoing government shutdown has left many taxpayers in the dark. Nearly half of the Internal Revenue Service’s staff has been furloughed, with only some essential operations continuing using funds from the 2022 Inflation Reduction Act. Phone lines, taxpayer assistance centers and mail processing are closed. Amended returns and refund checks are on hold until operations resume, and no new updates, transcripts or notices are being processed or posted to taxpayer accounts.
Taxpayers, meanwhile, are still expected to make timely filings and payments, which is proving difficult for many, including expats and U.S. taxpayers with offshore assets or foreign trusts. For example, those individuals with foreign assets might face delays in filing Foreign Account Tax Compliance Act forms, such as Form 8938, Statement of Specified Foreign Financial Assets, which requires manual review by IRS staff. There’s also a limited ability to resolve tax issues, get guidance on complex international tax matters, and extended processing times for those waiting for overseas tax refunds. Delays in reporting can leave taxpayers exposed to penalties as reporting deadlines remain in effect.
According to Blake Harris, asset protection attorney and founding principal of Blake Harris Law, “Taxpayers and trustees should focus on filing electronically and keeping a clear record of everything submitted. If you can’t get transcripts or responses from the IRS, document every attempt and explain why in your filing. Ensure FATCA and Common Reporting Standard records tied to offshore accounts and trusts are current, and avoid making unnecessary changes to those structures until services resume.”
In addition, Harris said, “This is also a smart time to take a clear snapshot of your offshore trust or asset structure and address any weak spots before the IRS ramps back up. The shutdown underscores how instability can surface even in otherwise resilient economies, which is why many families view jurisdictions like Switzerland as safe havens for long-term asset protection planning. Working with experienced counsel can help ensure those strategies are applied correctly and protect what matters most.”
Tax Court Sessions Temporarily Halted
The Tax Court has remained operational during the shutdown; however, taxpayers with trials scheduled in the upcoming two weeks are also affected, as it announced on Oct. 14 that it will temporarily halt trial sessions. The affected trial sessions were scheduled to be held in Chicago, Phoenix, Houston, Tampa, Fla., and Columbia, S.C. Future trials remain in limbo, as the court said it will announce any further cancellations no later than one week before their scheduled start.
Taxpayers should expect further disruptions as the court enters Phase 2 of shutdown operations, as only core constitutional functions will be carried out during the period. With reduced staff, taxpayers will face delayed response times for case management and scheduling, among other functions. Filing deadlines remain and will not be automatically extended due to the shutdown—it’s therefore prudent that clients with pending matters in the court actively monitor any communications and check for operational updates. Although online filing remains available, if the Tax Court’s “filing location is inaccessible or otherwise unavailable to the general public on the date a petition is due,” Section 7451(b) provides a 14-day filing extension.
Relief Recommendations
The American Institute of Certified Public Accountants has called on the IRS to provide relief to taxpayers during the shutdown, including, among other recommendations, suspension of compliance actions and automated collections, such as liens and levies, until at least 60 days after the shutdown ends and targeted relief (for taxpayers who pay at least 70% of the current year’s tax due or 70% (90% for higher-income taxpayers) of the prior year’s tax, and for those who timely request an extension and pay at least 70% of taxes owed) from estimated tax and late payment penalties for those affected by the shutdown. The IRS has yet to respond or implement any changes based on these recommendations.
A prolonged shutdown will likely lead to backlogs and further delays, even after operations resume, with the agency already struggling following major layoffs earlier this year.