With shutdown looming, IRS software providers face confusion

With less than two weeks to go before the April 18 tax-filing deadline, the Internal Revenue Service has not instructed its partner software providers on how to carryout electronic filing if the government shuts down April 9, officials from TurboTax-maker Intuit said.

Congressional Republicans and Democrats are struggling to agree on agency spending levels for the rest of the year, before current, temporary funding expires on Friday. If they cannot pass a spending bill, then agencies must halt activities that are not considered essential, or critical to protecting public health, national security and property. Pre-existing agency guidelines distributed through the Office of Personnel Management identify tax collection as an essential operation but do not address electronic filing services.

The most recent shutdown -- a three-week furlough in 1996 -- did not coincide with tax season, and most individual taxpayers back then were not filing over the Internet. Today, e-filing is the norm, according to IRS officials. As of March 25, the IRS already had received 71.1 million electronic returns, whereas the agency collected a total of only 18.1 million e-filings in 1996. Typically, about a quarter of taxpayers file in the last two weeks of tax season -- right when the shutdown would be occurring.

Intuit officials on April 4 indicated the IRS has not informed tax software companies about shutdown emergency plans.

"The national budget discussion is very fluid," Intuit spokeswoman Julie Miller said. "We're sure that the IRS will take a proactive approach to providing guidance to the tax preparation industry, including Intuit, as soon as it can on how it will handle a possible government shutdown."

The firm is one of 19 commercial software businesses that partners with the IRS to offer eligible taxpayers free electronic preparation and filing services. This year, the Free File program is open to Americans with a 2010 adjusted gross income of up to $58,000, which is estimated to be 98 million people, according to the consortium, known as the Free File Alliance.

Officials at IRS' parent agency, the Treasury Department, declined to say how a shutdown would affect e-filing, automated refunds, or other online help services. They said Treasury is prepared for any contingency as a matter of course, adding the agency has maintained emergency plans in case of a government shutdown since 1980.

"Discussions are ongoing and the congressional leadership and the president have said they want to avoid a government shutdown," Treasury spokeswoman Sandra Salstrom said. "So, we're not going to discuss hypothetical scenarios."

The National Taxpayers Union, an organization that advocates for a less burdensome Tax Code, noted several factors are adding to e-filers' confusion this tax season. In January, the IRS had to delay processing some returns by a month because the agency needed time to reprogram its computers to accommodate tax law changes passed in December 2010. In addition, federal auditors recently reported that Americans have difficulty obtaining the materials and services they are seeking online, at IRS.gov, during normal filing seasons.

"In this season which was already complicated before the shutdown threat, some guidance and reassurance for filers and the preparation community alike would be especially welcome right now," said Pete Sepp, the union's executive vice president.

If the government does shut down, internal watchdogs at Treasury's Inspector General for Tax Administration office will track the impact and report on it, staff for the inspector general said.