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WSJ Your Money Briefing
IRS Suffered Significant Harm During Government Shutdown
00:08:36
The government shutdown that lasted from December to mid-January resulted in the IRS not being able to keep up with correspondence and impeded its ability to provide assistance to taxpayers. Wall Street Journal tax reporter Richard Rubin explains.
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With your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. The government shutdown that ended in January did some real damage to the IRS and its ability to process correspondence and offer assistance to taxpayers. We'll fill in some details in a moment. First, these money and market stories you should know the Labor Department says the number of job openings in the US rose to 7.3 million in December. The that's the highest level since 2000. The increased openings late last year were followed by robust hiring in January. That likely reflects a good labor market and modest improvement in wages. It's pulling some potential employees off the sidelines and causing the unemployment rate to rise even while hiring remains strong. The Labor Department report also shows the rate at which Americans quit their jobs held steady for the third straight month in December, as that's a sign of confidence in the job market. That rate was down slightly from the 17 year high reached last summer. Meanwhile, Americans are borrowing more for cars and less for houses. That's the word from the Federal Reserve bank of New York. Mortgage originations fell in the fourth quarter of 2018 to $401.5 billion, the lowest level since the first quarter of 2016. And mortgage originations for all of 2018 were at the lowest level since 2014. Auto loans, on the other hand, have been steadily moving up since 2010. Now, last year saw the highest volume of new auto loans on record at $584 billion. But overall, the loans taken out by consumers appears to be leveling off. The New York Fed also says for the 18th consecutive quarter, household debt rose during the fourth quarter of 2018 to $13.5 trillion. But at the same time, credit inquiries for the past six months have dropped to the lowest level in the history of the data, which stretches back to 2003. The government shutdown that lasted until late January directly affected hundreds of thousands of federal workers by delaying their paychecks and some federal contractors who missed their paychecks altogether. But I But it also created ongoing headaches for the IRS and taxpayers looking for assistance. And Wall Street Journal tax reporter Richard Rubin is on the line with us with some details. So, Richard, the IRS own internal watchdog group says the shutdown resulted in mountains of backlog mail and audit responses.
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C
The IRS is a large agency with in a regular day, it's got about 80,000 people working there. And yeah, people are more likely to take vacation over the Christmas holiday. But on a regular workday, people do stuff. They process correspond, they respond to process amended returns, they respond to letters from taxpayers about audits. So all of that stopped, or a lot of that stopped. And so that created this backlog that IRS workers are having to deal with now, even as they're also dealing with the 2019 filing season.
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B
And there's a lot of confusion that could come around this year because of the new 1040 form. And a lot of people I would imagine will be looking for some assistance from the irs. And the wait time on the phone line to the irs, that wait time is shot up also.
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C
Yeah, the wait time on the accounts management line is up from 4 minutes in the equivalent week last year to 17 minutes this year. Some of that is the new form. Some of that is the new rules. There's this new business deduction. There's limits on other deductions. Other deductions have gone away. The forms look different anytime you change things. That's just going to add taxpayer service burden. Congress knew that when they passed the law. But we're in this real adjustment period.
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B
And in your Wall Street Journal story, you mentioned that during the shutdown the IRS sent out letters dealing with, as you put it, serious consequences. And then recipients had a difficult or even an impossible time responding. I would imagine that time is of the essence in a situation like that.
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C
Yeah. The example in this report, which comes from Nina Olson, the National Taxpayer Advocate, is the IRS sends out letters that are notice of intent to levy. And a levy basically means the IRS takes money out of your bank account. And if you have a severe hardship, if you are really poor, the IRS will not levy your bank account. They will work with you and try and get a payment plan set up in some other way. But you have to actually get someone at the IRS to do that, declare that you have a hardship and stop them from having your bank take the money out of your account or stop your employer from taking money out of your paycheck to pay the irs. And they just weren't able to do that. So it's unclear how many people are in that situation. But that's the kind of situation that happens when there aren't people on the other end.
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B
And the IRS Watchdog says that yes, the IRS is working to overcome the backlogs, but also made it clear that tax simplification is needed.
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C
Yeah, I mean, she's always supported tax simplification. And look, there are things that are simpler about this new tax system, but in some sense the tax code is always kind of complex. And so it's going to continue to be challenging as people work their way through this new system and trying figure out exactly how they interact with the irs. And the irs, it's not like it's starting from new, starting from scratch. It's starting from a period where funding has been relatively flat or down as a, you know, if you look at inflation adjusted funding over time and it's got fewer workers in an aging workforce and aging technology and it's, you know, it's a government agency that has been struggling for years and so giving it extra burdens is likely to cause concern. And Ms. Olson writes in her report.
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B
Now, Richard, we briefly mentioned changes to the 1040 form this year. What are some of those changes?
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C
So the big change is it changes it from the COVID page is now a postcard style one page thing. And then there are up to six schedules that get attached to it, schedules one through six. And that's all new. And it'll look a little bit different. Now, most people don't really know use the form to fill out their taxes. The 1040 is an output of the tax software or what your accountant puts in depending on how your returns are prepared. So most people don't do it with the form. But for the small percentage who do, they'll have to get used to this new system that just looks a little bit different from the way it's been in the past.
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B
I mean, going back maybe three or four presidential administrations, they've been talking about doing your taxes on a postcard. It's sounds like that's almost like a step closer to that.
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C
We are a step closer to that for some people. It's always been true in the past 15, 20 years that if you have a relatively simple set of finances, wage income, no investments, not very high income, and you're not claiming big refundable tax credits, that filing actually already was pretty straightforward. The new system, the new rules that expand the standard deduction will make filing simpler for some people. The repeal of the AMT for alternative minimum tax for a lot of people will make the system simpler. That was you have to calculate your taxes twice. So there are definitely some moves towards simplification that have gone on in here. But We've also continued to use the tax code for all sorts of other kinds of policy to promote energy policy and health policy. And those things aren't really changing. And if you're trying to deal with any of that on your tax return, it's certainly still going to be some more complexity than a lot of people can necessarily handle themselves.
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B
And there's a fear as of February 12, when we're discussing this, that talks are ongoing, but another shutdown is not fully out of the question yet. That could be really damaging this far into the tax season.
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C
Yeah. I mean, look, Iris has a plan to have about 57% of its workers show up during a second shutdown during the filing season. They would still answer taxpayer calls and process refunds. But you can just imagine that an understaffed IRS is going to be understaffed and is going to be able to do less than it could do at full strength, even if full strength is not what the service and some of its advocates would like it to be anymore. And so, yeah, I think certainly another shutdown, if that happened, would in the middle of tax season would be a cause for concern for taxpayers and for IRS employees, too. All right.
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That's Wall Street Journal tax reporter Richard Rubin on the line via Skype for us from Washington. Richard, thanks for being with us.
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C
Sure. Thanks.
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B
And that's your money briefing. I'm J. R Whelan in New York for the Wall Street Journal deal replaces
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fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries. Operate like a local everywhere. Visit De L. Com WSJ.