Wyden Urges IRS to Waive Certain Taxpayer Underpayment Penalties; Partial IRS Shutdown Continues

The top ranking Democrat on the Senate Finance Committee (SFC) is urging the IRS to waive certain underpayment penalties for taxpayers during the 2019 tax filing season. SFC ranking member Ron Wyden, D-Ore., has said it “seems unavoidable” that millions of taxpayers expecting a refund this tax season will instead owe taxes because of Republican tax reform enacted just over a year ago.

Underpayment Penalty

In a January 3 letter addressed to IRS Commissioner Charles Rettig, Wyden criticized the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97) effect on middle-income taxpayers as well as its “rushed” process of implementation. “As a result, Treasury had to jury-rig the current withholding allowances instead of properly revising the W-4 so that employees could update the number of allowances they claim with their employers,” Wyden wrote.

Wyden suggested the one-time waiver during the 2019 tax filing season of “under-withholding penalties” in accordance with a recent IRS Information Reporting Advisory Committee (IRPAC) report. Although the IRS encouraged taxpayers to use a new IRS Withholding Calculator on its website to ensure proper paycheck withholding, an IRPAC report estimated that the online tool was not utilized by most taxpayers. Additionally, a Government Accountability Office (GAO) report, requested by Wyden, estimated that approximately 30 million taxpayers’ income could have been under-withheld in 2018.

“While the IRS cannot spare taxpayers who have been under-withheld from paying what is due, IRPAC recommends that IRS waive under-withholding penalties on taxpayers for this filing season so as not to add insult to injury,” Wyden wrote. The IRS has not yet announced the official start date of the 2019 tax filing season.

Partial IRS Shutdown

Currently, several taxpayer service functions of the IRS are not operating under the ongoing partial government shutdown. Most tax reform implementation IRS operations are expected to continue, such as TCJA-related guidance and updates to forms and instructions. However, the IRS does not generally answer taxpayer questions outside of the filing season or issue refunds during an ongoing government shutdown. Additionally, transcript requests unrelated to disaster relief are not processed. The Service is expected to continue to process most tax returns with payments, however.

At press time on January 3, there was no end in sight for the partial government and IRS shutdown. Although the newly Democratic controlled House is poised to vote on an appropriations package to reopen the government, the Senate is not expected to take up the measure. A spokesperson for Senate Majority Leader Mitch McConnell, R-Ky., told Wolters Kluwer that the Senate will not consider a bill that the president will not sign. At this time, President Donald Trump does not support an appropriations package to reopen the government that lacks requested border security funding. Thus, House Democrats’ bill is expected on Capitol Hill to be dead on arrival in the Senate.

By Jessica Jeane, Senior News Editor

A copy of Wyden’s letter can be located here: https://www.finance.senate.gov/imo/media/doc/010319%20RW%20to%20Rettig.pdf

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