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Welcome to the AICPA Town Hall Series, your resource for the latest news and updates on pressing issues facing the accounting profession.
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Hello, I'm Mark Peterson, the executive vice president for Global Advocacy at the aicpa. And I'm joined by our vice president for advocacy, tax advocacy, Melanie Lauridson. And we're going to give you just a quick recorded update of the state of play of things that are going on and as we enter the 30th day of this government shutdown. And so, Melanie, update kind of on what we see as the latest moving in the negotiations. The House of Representatives has been out since they basically passed their solution of a short term extension of government funding at current levels until November 21st. Now, it's important to remember that date, Melanie, because we're getting closer and closer to it. Right. The idea was the House passed extension in order to buy more time after the government was hitting the shutdown October 1st. And that was supposed to buy some time in order to get all of those appropriations bills and funding bills done. And that hasn't happened. So that's been sitting in the Senate. Senate has voted on it 13 times in order to again extend government funding. None of those have prevailed. Just a reminder, 60 votes to get that done in the Senate. There have been several, two, three Democrat senators that have crossed the aisle, but it has not been enough to get to that. The Democrats have offered an alternative which is yes, we'll extend, but we also want to include a permanent extension on the premium tax credits for ACA or Obamacare as well as some other additions, changes to Medicaid for funding for PBS and then an issue related to a prohibition of rescissions, which would be the ability to take away money that's already been programmed. So that has been put on the Senate floor, hasn't passed either. So that has been kind of the way things have been going over the last few weeks. 30 days into this with some discussions about the idea, well, what about an alternative to a permanent extension of those tax credits? Maybe let's make them temporary. That has been turned down. But the thing to remember related to a shutdown is they're never the same. The facts and circumstances are different. We've gone through shutdowns regardless of who's in the White House, regardless of who's in charge of Congress. And you know, trying to figure out what that deal is going to be is where we are right now. The big, big inflection points are the 1st and the 15th because that's when whether the troops are going to get paid or not or whether federal employees are going to get paid or not. And think of TSA and the air traffic controllers who are required, who are essential. So they're required to report to work, but they're not being paid. There has been some movement of money around already, programmed money that has helped offset some of that. But each time we hit a 1st and a 15th, it becomes a bigger challenge. And here we are getting close to a first again. The president has been in Asia since last week negotiating trade deals and he isn't back until it's been. He's been gone 10 days. He isn't back until next week. So that's something to keep in mind because he really has not been other than saying that the Democrats should follow the House Republicans lead and extend the government current funding levels, he hasn't really participated in the negotiations. And so kind of where we are now, if we could go to the next slide, Melanie, is a couple new things right, that we're going to hit the next payday for the troops. They were able to move some money around for those, those first paychecks in order to try and offset that can do that again or, you know, are they going to be able to figure out how to get the troops paid on the 1st? Probably not on the 1st. So then you're looking at the 15th. The same thing with essential employees, those that have been furloughed, not working, plus those that are actually essentials, they're working but they're not being paid. There's two competing conversations going on. One is, hey, as long as they're going to get back paid anyway, those furloughed employees, let's just get them paid. The other being let's just pay those that are essential that are reporting to work and are not furloughed. So that discussion is going on in the mix again as we hit the first and the next potential payday. The other two significant issues that put a lot of pressure on policymakers to get this done is the nutrition programs. You know, snap, you know, low income nutrition and Women Infants and Children WIC funding. You know, we hit November 1st and there's going to be real challenges in getting those subsidies out. So that is a significant factor in play and trying to get to a resolution. So the pressure is growing paydays and then these nutrition issue supplementals that are out there. The other thing that is a new element is one of the largest federal employee unions came out with a statement basically saying policymakers get the government open, do a short term extension. So that put a lot of pressure on the Democrats in this case in order to move forward with a short term extension. Again, have to emphasize neither of these solutions are long term. Both of the solutions are just to buy weeks in order to try and get those funding discussions done and figure out how they're going to get the government opened up again. The other thing is there had been some conversations, potential threats you could say about actually laying off or riffing some of the non essential employees. A U.S. district Court judge actually blocked the administration from doing that. So there had been threats about that which was putting more pressure on these negotiations. District court judge has blocked the authority of the administration to do that. Two other real quick concepts that I'm going to throw it out. There is there are two elections, these are off cycle elections going on in New Jersey and in Virginia that are next week. And so the government shutdown, who's responsible, who's taking more blame, will be part of those elections that we're gonna see next week. Lastly, one of the concepts that gets thrown out is also this idea of a nuclear option. And I don't think it's gonna happen. But let me just describe it to you. This is a procedure in the Senate, okay? So basically for most things 60 votes is required in order to move on to a bill in the Senate. So there's a 60 vote threshold. In 2013, I believe it was then Democrat leader Harry Reid utilized this procedure in order to not meet the requirement of that 60 vote majorities in order to move some Obama judicial and executive branch nominations. Used again in 2017 by Leader McConnell at that time in order to get a nomination for the Supreme Court. Through the process, it has not been used outside of those circumstances. It was just recently used in a different, different kind of way to move a group of nominees through the Senate. There is this idea that maybe they could use it for government funding. It is possible. Could a Republican majority utilize it? They could. I don't think under this environment they're going to. I think one thing that if you're in the majority you think about is, is what about when I'm in the minority, when my party's in the minority, that having that 60 vote majority requirement and the ability for us to be in those discussions is super important. So it's getting some discussion. I put it in the unlikely category. So let's talk about Melanie, some of the other agencies, it's not just the IRS and you're going to hit on that. But you know, over 70% of HUD and the Department of labor have been furloughed. So they're at a skeleton crew. They're just basically doing the minimum required work that they have to do. There are grants that funding was already in the pipeline that are proceeding. But if a grant was in approval process, we was in play. That is not moving forward. Omb, there was a supplemental guidance that was in draft form that a lot of members are waiting for. Work is not going to continue on that. As an example, economic data that comes out of the Department of Labor or the bank regulators. That's not moving forward, which is having an impact that we're seeing. And so it's not just treasury and the irs. There is a lot of other agencies that are being impacted. But we did mention at the top, you know, there is. We call it a shutdown, but there are still functions that are occurring. Right. And so an example of that would be treasury and the State Department. The teams that are negotiating the tariffs are, are definitely still working away at that. And so, you know, they're definitely at minimal, but they're trying to prioritize the areas where they think they really, really have to focus in order to continue to do the minimal level of service for, you know, taxpayers and those that have to comply with those agencies. But probably the one that we hear the most about, Melanie, is IRS and Treasury. We do.
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And on the slide, there is a QR code so that you can actually see a special edition town hall that we did on October 16th. And we actually dove into each one of the different agencies and the implications of the shutdown that we know. And not much has changed dramatically for a lot of those agencies since the contingency plan is still in place. But the IRS actually did have some changes with their contingency plan. And I take a deeper dive in that webcast. So just to gloss over it quickly, the original contingency plan that came out had the IRS fully accepted, meaning 100% of their staff were functioning and working for five business days. After those five business days, they furloughed approximately 46% of the IRS, which equates to about 39,000 employees at the IRS. Now, as the shutdown has continued, the IRS has deemed that other things have become necessary according to their priorities. And recently they announced their priorities. And their priorities are, of course, implementation guidance for HR1 that is top of mind. And they actually brought back 45 chief counsel employees to take a look to start working through that guidance. And we have started to see nuggets of information coming out from the irs, it is not final information. I know all of us would like to see more information, but they did say that no tax on tips, no tax on overtime, and the Trump accounts, that for those three areas that they would provide guidance at some point in November. So that is working and moving forward. Taxpayer services, of course, is top of mind for us. The priority Practitioner service line is critical for tax practitioners to be able to call in to the IRS and have those conversations. And the IRS has come forward and they've said that, yes, those are still priorities for them. And as of last week, there was an announcement that was made saying that the start of the filing season would not be impacted and that the guidance coming out on HR1 would still be on track. But that really leaves us with a lot of concerns with it, particularly how can they get that guidance and when so much is needed and the IRS isn't fully staffed. But also the backlog, and there was an earlier take to report that said that the backlog, in the worst case scenario, they were predicting that it could be three times that of what it was during the COVID timeframe. But more importantly, TikTok came out with a report on October 27th. And in it they touch on a couple of different areas of concerns that they've had. And they're not all shutdown related, but what they do talk about is with the reduced staffing, they have real concerns as to what taxpayer services are going to to be coming forward. And they have concerns about the start of the filing season and of course, getting guidance out in a timely manner, which kind of goes and feeds into all of our concerns that we have with the irs. So as you know, Mark, we came together, our members are volunteer groups and we try to think about what would make a difference and an impact for people during this time and period of the shutdown. So number one, and I'll keep reiterating, the IRS should be fully functioning. 100% of their employees should be working, working. Simply put, nobody wins in a shutdown. There's a lot of lost efficiencies and a lot of duplication of work. So it's just not convenient for the irs, taxpayers and everybody involved. However, here we are with a shutdown and they're not fully functioning or working. And so therefore, we did come forward with some recommendations. So the first recommendation that we have is to discontinue compliance actions. And that one, that's a hard one because IRS can stop their systems for those automated collection notices that come out. But what's hard is when we Deal with members. The members think that we can't resolve the problem and we can't because we can't pick up the phone and call them. And there's nobody there to answer the phone or nobody there to resolve it for you. And they think it's us, it's our inability to be able to resolve the issue. And so that really needs to stop because that also creates backlogs. And the only way to respond to that is through mail. Another one which kind of seems like a no brainer is the online systems that the IRS needs to continue having them operational and functioning during this time. It is a lifeline. But that TIGDA report, that October 27th report, it actually said that it's even more critical for the IRS to have all these online options functioning. They actually went to a taxpayer advocate center where people can come in and their computers to provide self service online functions for them. And they found that half of those systems were down and inoperable. And TIGTAT actually is recommending not only getting them fully functioning, but to create more as we come into a more environment of technology, but also as things like the shutdown occur. The other thing that that report came forward with, it said that during COVID and other previous shutdowns that the IRS actually assessed $591 million in penalties on over 400,000 taxpayers. And their recommendations, of course, are to update their systems so that as it goes through the screening process, less people will be caught in these erroneous notices. Now that is something that yes, we are on board with, but more importantly, they also should streamline the reasonable cause penalty waiver and they should also provide estimated and late payment penalty relief for these people because those are large numbers of people getting impacted erroneously by the IRS during this timeframe.
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And those recommendations, Melanie, the IRS can do that. It's within their power. They do not need statutory authority.
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Absolutely, Mark. And they are actually very fair. They're reasonable and like you said, within their power to make and take that action to help taxpayers during this period of time. So we also have a great government shutdown page. And when I say government shutdown, I'm not talking tax, I mean all the different agencies. And we have information there that you can go through depending on what it is that you're looking looking forward. But we also have a link, you know, to the webcast for the town hall that we have, that we have to the comment letters. We also have advice to help during the financial hardship time and also job loss time. And of course we have the benevolent Fund. And also we've gotten lots of questions for the not for profit area and what the government shut down and its implications. And there's some resources there on that slide. So I really encourage people to take a look at that. Now, specific to tax I think this webpage that we have here, this tax section News and member FAQs, it really shows you what kind of what we're working on and the big topics. Now, there's a lot of things that are open to everybody, including things like government shutdown questions and what tax practitioners should know during this period of time. But it also covers some of the systemic issues which we are seeing and still hearing of from members like the CP161 and other notices. And we give advice as to how you can handle them because we've worked with the IRS to try to come up with some of those solutions. So again, lots of great information there. But also on this slide, there is a client letter for those going through a government shutdown, and that is available for Tax Section members. And finally, next week we go back to being live on Town hall, and that is where we will continue to keep you updated. And that is November 6th to 3:00pm Eastern time. And I hope to see you there.
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Thank you, Melanie. And again, just to kind of sum up, where we are on October 30th is we're hitting the next payday where it's going to be a significant inflection point. There does seem to be a growing sense of negotiating. Do I think the government's going to open by the first? I don't think so. At the time of this taping. I think you get to the 15th, which is the next significant inflection point. Figure out whether they were able to fund those nutrition supplement programs. You're also, if you get through the 15th, you're starting to get into the holiday travel season. And so things like TSA and air traffic controllers start to come into play. And that is a significant political issue, as you mentioned, which is so true, Melanie. No one wins in a shutdown. The politics is one side may take more blame or the other. We don't know who that's going to be. We don't care. We're just trying to help our membership get through this. And so we are giving you the best information possible as quickly as we can, and we will update it when it becomes available. So thank you.
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Thank you, Mark. Thank you for your participation. You can also subscribe to the AICPA Town hall series on your favorite podcast platform as well as watch archives on YouTube and find resources@cpa.com Townhall Tune in for live broadcasts Thursdays at 3pm Eastern Time time.
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