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IRS Commissioner Says Shutdown Scenarios Under Discussion

Internal Revenue Service Commissioner Douglas Shulman said the Obama administration has not decided whether the IRS would process tax returns and issue refunds if Congress cannot agree to a plan to avert a halt of government spending authority on April 8.

Under previous plans developed for potential government shutdowns near the Oct. 1 start of the fiscal year, the IRS would deposit checks though it would not process tax returns or issue refunds.

“We’ve never had a government shutdown in the middle of the filing season before,” Shulman said in testimony before a House Ways and Means subcommittee today in Washington. “The closer we get to April 15, the more consideration and factors are at play.”

Shulman did not provide further details about discussions he is having with the Office of Management and Budget as to how the IRS would operate during a government shutdown. Individual tax returns this year are due April 18, rather than April 15, because of a weekend and Emancipation Day in the District of Columbia.

Congressional lawmakers are negotiating over spending plans that would cover the remainder of the fiscal year in an attempt to allow federal agencies to continue operating.

Tax Complexity

Also in his testimony today, Shulman said that the complexity of the U.S. tax code hurts the public and makes the tax system tougher to administer.

“The tax code is incredibly complex, and unfortunately it’s been going in the wrong direction over the last decade,” he said. “Anything you can do to simplify the code would help our agency.”

Representative Charles Boustany, who heads the Ways and Means oversight panel, told Shulman that he wanted to work with the IRS in overhauling the tax code to make the system simpler.

“As we go through that process, clearly with a mind on how to simplify things for the taxpayer, we also need to keep in mind the burden it places on your agency as well,” said Boustany, a Louisiana Republican.

The IRS has processed 73.3 million individual income tax returns through mid-March, up 3.4 percent from last year, according to a Government Accountability Office report released today. The percentage of returns that are electronically filed is 89 percent, up from 85.7 percent last year.

Electronic Filing

Electronic filing is important, Shulman told the panel, because it costs the IRS just 17 cents to process an electronic return compared with $3.66 to process a paper return.

Shulman reiterated his opposition to House Republicans’ spending proposals for the remainder of fiscal 2011.

He said a proposed cut of about $600 million to the IRS budget would have “potentially devastating effects to the nation’s tax system” and cost the government $4 billion in forgone revenue.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net Steven Sloan in Washington at ssloan7@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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