CLIENT ADVISORY: Caplin & Drysdale Comments on the Government Shutdown's Impact on Business and Individual Taxpayers

October 10, 2013, Caplin & Drysdale

Caplin & Drysdale's Founding Member and former IRS Commissioner, Mortimer M. Caplin and General Counsel, Christopher S. Rizek spoke with Accounting Today and Tax Notes, respectively, regarding their thoughts on the government shutdown and its potential impact on business and individual taxpayers, as well as on the federal government.  Both provide a general overview on what taxpayers need to know to stay in compliance with IRS regulations during the shutdown.  For full coverage, please visit the links below.

Accounting Today
Tax Notes (subscription required)

Excerpts taken from the articles.

Mr. Caplin for Accounting Today
"So far as the IRS or the tax law is concerned, [taxpayers] must live by the statute," he pointed out.  "For example, if [a taxpayer] want[s] to go into the Tax Court, the statute requires that a petition be filed within 90 days from the date that the liability is posted, with the post office stamp on it.  That rule is still in effect."

Mr. Rizek for Tax Notes
The looming October 15 deadline could also cause anxiety for taxpayers who filed for six-month extensions back in April, Rizek said.  Those include high-net-worth individuals with many information returns, such as Schedules K-1, that must be paired with the appropriate forms W-2 and 1099 through the IRS's matching programs.  Those filers can meet their filing and payment obligations by postmarking their returns as late as October 15, Rizek said, but the taxpayers won't get any refunds during the shutdown and can't resolve any controversies over their tax obligations until IRS employees return to work.

Further, because the October 15 returns are usually matched in November, the work backlog could push that process back, Rizek said.  [Thus, people with minor deficiencies or math error notices may have an additional interest cost.] "A month or two's interest at 2 or 3 percent is not your biggest concern if you're facing a tax adjustment," Rizek said, "but cumulatively it could be a pretty [big] effect."

Mr. Caplin for Accounting Today
Caplin also has advice about dealing with tax liens and levies.  "The taxpayer has the right to get a hearing on a proposed lien or levy, but they must file within 30 days [after] the time of the mailing of a notice of determination," he said in an interview Friday.  "Hand delivery to the courthouse is not available, so you really have to mail it and have a stamp by the post office on your petition that you file with the court."

Mr. Rizek for Tax Notes
Refunds delayed more than 45 days from the date of filing the return are entitled to interest, Rizek notes.  While it's not clear how many October 15 filers were over withheld on or otherwise entitled to a refund, "that could be a huge hit to the Treasury Department," he said.

Rizek added: "Even a small blip in compliance levels will have a much longer-term effect than whatever sort of short-term dislocations there are. . . . There are definitely those sorts of small dislocations, on a transaction-to-transaction basis, that cumulatively could add up to quite a bit.  But in the long, long term – beyond, you know, a year – the bigger danger is that it hurts the IRS's compliance level one more time.

Mr. Caplin for Accounting Today
Besides the government shutdown, Mr. Caplin sees danger from the threat to not raise the debt limit.  "The interest rates on our bonds will go up, and the general sentiment about the standing of the United States government in the eyes of the world will be damaged very badly. It isn't only the cost to the government of the extra interest rates and things of that sort, but the general sense of respect of the United States.  I think Congress should act quickly."