If There Is a Government Shutdown, the Taxpayer Advocate Service Will Not Be Permitted to Assist Taxpayers

As of today, it appears Congress may not approve appropriations legislation to fund parts of the government, including the IRS, by the start of the fiscal year that begins on Sunday, October 1^st. As a result, today is the last workday I can post a blog before a potential shutdown.

Taxpayers and their representatives should be aware that if there is a lapse in appropriations, the Taxpayer Advocate Service (TAS) will not be permitted to assist taxpayers until the government reopens.

That means that if the IRS has already issued a notice requiring an employer to garnish a taxpayer’s paycheck or requiring a bank to levy on a taxpayer’s bank account and those collections actions cause an economic hardship for the taxpayer, the taxpayer will have no way to get help from TAS.

This is a terrible result for taxpayers who are experiencing economic hardships and will not be able to obtain relief from TAS.

Here is a quick primer on why this is so: Article I of the Constitution provides that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” To implement this requirement, Congress has passed several statutes, most notably the Antideficiency Act (ADA). The ADA generally prohibits the U.S. government from making or authorizing an expenditure or obligation unless funding has previously been made available through an appropriation or other funding mechanism. The ADA contains a general prohibition against the acceptance of voluntary services (i.e., services for which compensation has not yet been paid or obligated), except for “emergencies involving the safety of human life or the protection of property.” (Emphasis added.)

Yesterday, the IRS Lapsed Appropriations Contingency Plan (the Lapse Plan) was published. The Lapse Plan runs 144 pages and details what the IRS will and will not do during a shutdown. While much of the detail is consistent with prior lapse plans, the results are no less troubling. The Lapse Plan reflects the view that the “protection of property” exception encompasses only government property – not the property of U.S. citizens and taxpayers. If a taxpayer is experiencing a hardship because the IRS has filed a Notice of Federal Tax Lien against the taxpayer’s home or other property or if the IRS is in the process of seizing the proceeds of the taxpayer’s bank account or taking a percentage of the taxpayer’s paycheck . . . well . . . none of that is government property, so the taxpayer is out of luck. Currently, the IRS is issuing fewer levies than usual; automated levies were suspended because of the pandemic and related issues. But field revenue officers have continued to issue levies, and we understand that some continuous levies have remained in place.

Section 6343(a)(1)(D) of the Internal Revenue Code requires the IRS to release a levy if it determines the levy “is creating an economic hardship due to the financial condition of the taxpayer.” The statutorily defined functions of TAS include “assist[ing] taxpayers in resolving problems with the Internal Revenue Service.” When a taxpayer suffers or is about to suffer a significant hardship due to an adverse IRS action or when an IRS action may result in an irreparable injury to the taxpayer, the National Taxpayer Advocate or her delegate is authorized to issue a Taxpayer Assistance Order, which may require the IRS “within a specified time period … to release property of the taxpayer levied upon,” among other things.

Question: What if a taxpayer is experiencing an economic hardship as a result of an IRS levy and stands to be evicted due to nonpayment of rent? Or if the IRS was simply mistaken in taking the collection action?

Answer: TAS won’t be able to help because the taxpayer’s abode is not government property.

Ordinarily, TAS serves as the “911” of tax administration; the form on which taxpayers request TAS assistance is even numbered “911” for that reason. But the IRS’s “911 system” goes dark during a government shutdown.

Not only will taxpayers be harmed by collection actions taken during a shutdown, but they may also be harmed by collection actions taken in the weeks preceding a shutdown. For example, a bank usually has up to 21 days to remit levied bank proceeds to the IRS. Therefore, at a minimum, taxpayers will continue to be affected by levies issued beginning September 11 if the government shuts down on Sunday. And if a taxpayer is facing an economic hardship, the Revenue Officer who issued the levy will probably not be in the office on Monday to assist the taxpayer, nor will my TAS Case Advocates.

As the National Taxpayer Advocate, I am beyond frustrated that TAS cannot help taxpayers who are experiencing economic hardships during a government shutdown. Helping vulnerable taxpayers is a big part of our mission.

I understand the legal rationale for preventing TAS from assisting non-hardship taxpayers, as those aren’t emergencies under the ADA. But the asymmetry of allowing the IRS to collect from taxpayers while not allowing TAS to work with the IRS to halt or limit collection actions that could literally put the taxpayers in the poor house is unacceptable. It produces a “heads the IRS wins, tails the taxpayer loses” result.

All recent lapse plans, including lapse plans issued during the Obama and Trump administrations, have reflected a view that the exception for the “protection of property” in the ADA applies only to protect government property and not to protect taxpayer property. I question that interpretation because the language of the ADA is not limited to “government property.”

I urge the IRS, the Treasury Department, and the Office of Management and Budget to reconsider this portion of the Lapse Plan and authorize TAS to assist taxpayers experiencing economic hardships to protect taxpayer property.

If this is not done administratively, I urge Congress to pass legislation to specifically authorize TAS to assist taxpayers during a lapse in appropriations, as I have previously recommended in the National Taxpayer Advocate’s Purple Book.

Just four years ago, Congress passed the Taxpayer First Act. If TAS cannot assist taxpayers experiencing economic hardships, it will be time to reopen a discussion of what putting taxpayers first actually means.