IRS recalls employees to work without pay

The IRS announced an updated shutdown plan that includes bringing back tens of thousands of workers to process tax returns during filing season.

The move comes after an unsuccessful bid by the National Treasury Employees Union, which represents 70,000 IRS workers, to convince a federal court to issue an injunction against the practice of requiring federal employees to work without pay during a lapse in appropriations.

Under new guidance, more than 46,000 of 80,000 IRS employees will be required to work, up from about 8,000 deemed excepted or essential under the tax agency's initial shutdown plan. Both the new plan for filing season and the previous plan both call for a large proportion of tech workers to be on the job.

The new plan has 3,766 tech employees working without pay to support the filing season. That compares to 3,337 deemed excepted or exempted for the tax agency's non-filing season plan. According to 2018 data from the Office of Personnel Management, there are 5,767 IRS employees classified under the IT management category.

"There's one big rule at IRS: you don't screw up filing season," said Julie Rushin, former deputy CIO at the agency until 2013.

The questions remain, however:  Can the IRS perform short-staffed during the demanding tax season, and will the agency's notoriously ancient and creaky technology cooperate?

Former IRS technology chief Terry Milhollland said previous contingency plans assigned most non-furloughed tech employees to support key tax processing systems like the Individual Master File and CADE2.

Complicating matters this year is a massive overhaul of tax processes connected with the tax cuts passed in the previous Congress. These require updates to dozens of IT applications. The newly updated shutdown guidance states that the agency is "on track to complete the necessary information technology programming to enable all revised and new forms to be accurately processed in the 2019 filing season."

Milholland offered one major caveat: if something goes wrong with the IT systems supporting the tax filing process, as it did last year, the IRS may not have the resources to troubleshoot and correct the problem in a timely manner.

Further, the IRS relies extensively on contractors to help maintain many of its systems and deal with emergent IT problems related to filing season. Even if the work related to those contracts is deemed essential, companies may still reassign or let go staff if the government isn't paying them.

"The problem is IRS can identify who they think is necessary to be available under these conditions, but you cannot require contractors to keep people on board when they have no money to pay them," said Rushin, who now runs a tax consulting firm. "The contractor side is a huge chunk of [IRS] IT. You can't guarantee that those people are going to be available, so that's where you start running into problems."

NTEU National President Tony Reardon said in a statement that seasoned IRS workers also could start heading for the exits if the shutdown isn't resolved and IRS staffers continue to work without pay -- especially with one in five IRS employees eligible to retire.

"I'm worried that highly trained IRS employees will consider quitting so they can get a job that actually comes with a paycheck," Reardon said.

FCW reached out to the IRS media relations office for comment on this story but has not received a response.

A Jan. 11 letter sent by Sen. Ron Wyden (D-Ore.) to Treasury Secretary Steven Mnuchin asks whether the shutdown will impact the tax agency's ability "to process paper returns and issue tax refunds for seniors and low-income families who may not have access to electronic filing," and whether taxpayers who need call assistance from the IRS will be speaking to a real employee or an automated system.

The IRS estimates that it loses somewhere around $450 billion every year in unpaid taxes. Wyden asked if the "skeleton staff" at the agency is still able to meet its tax enforcement obligations and whether the shutdown makes it easier for cyber scammers to steal identities and file fraudulent returns.

The latest guidance from IRS indicates that call sites set up to respond to questions from taxpayers during filing season are considered excepted activities. However, audits, examination of returns and processing of non-electronic tax returns are not.

While the IT systems the IRS uses to detect potentially fraudulent activity are "world-class," Milholland said that flagged returns still must be analyzed by human beings to determine whether further investigation or action is needed. While IRS is able to hold returns for a certain period of time for further analysis, after 45 days it must start paying interest, meaning there is a financial incentive for the agency to simply release them before that deadline.

"The real issue [during a shutdown] was, did we have enough people to chase the potential fraud?" said Milholland. "They can issue refunds but may not have people to determine whether they're fraudulent or not, which means they may very well release refunds that people are cheating on."

Another focus that is likely to fall by the wayside is foreign account tax enforcement. Laws like the Foreign Account Tax Compliance Act allow the IRS to go after billions of dollars in revenue from companies or individuals who stash income overseas to avoid paying U.S. taxes. Years of budget cuts have already sapped the agency's enforcement division, and the overriding focus on filing season means that most of those operations come to a halt.

"Compliance operations just cease," said Rushin, who spent part of her 39-year career at the IRS enforcing international tax compliance. "The plans have to get redone, there's less money collected, less returns audited and whenever you start and stop those operations…there's always a lot more cost than people understand."