The Trump administration’s decision to issue tax refunds despite a lapse in funding for the IRS could bring it into a legal gray area.
As with other aspects of a government shutdown, the decision is inherently political: Aside from the pragmatic desire to keep up with the government’s obligations to taxpayers, the Trump administration is also motivated by the desire to avoid withholding refunds from them due to the shutdown and further weaken the president’s standing in the fight over the border wall with Mexico.
Refunds may require the administration to call potentially thousands of IRS employees back into work without pay. But the law requires that unfunded functions deemed nonessential be shut down when funding runs out, as it has now for a majority of the federal government, so long as doing so does not threaten property or human life.
Speaking to reporters in the Capitol on Tuesday, House Majority Leader Steny Hoyer, D-Md., cried foul on the administration’s decision, saying they were trying only to limit the political pain of the shutdown for congressional Republicans and their constituents.
“What I am concerned about is the administration thinking it can make its own rules and have its cake and eat it too,” said Hoyer. “It wants to shut down the government and not hurt any of their priorities. It is not a reasonable stance to take, nor is it, in my opinion, perhaps a legal position to take.”
The administration’s decision to pay out refunds also presents a quandary for Democrats. They would risk a political backlash if they issued a legal challenge to the continuance of tax refunds.
As a legal justification, administration officials on Monday cited a 2011 Treasury Department contingency plan to keep tax return processing, including refunds, on the grounds that not doing so could harm government property: The revenues generated from tax collection. In addition to wanting to collect taxes, the government also has to pay interest on payments, including refunds, delayed by a shutdown, which would mean it ends up with less money than it would without an interruption.
But that 2011 guidance suggested that only electronic filings could be refunded, since it would take more effort to shut down the IRS’ automated filing system than to keep it running as normal.
Though the Trump administration cites that 2011 guidance, the Obama administration’s Office of Management and Budget decided against collecting taxes and issuing refunds during a shutdown. Trump’s OMB reversed that decision.
Mark Mazur, executive director of the Tax Policy Center and former assistant secretary for tax policy with the Treasury Department during much of the Obama administration, wasn’t sure whether the Trump administration’s decision was legal — but also wasn’t sure anyone would challenge it.
“It’s a gray area,” said Mazur. “I think what you see is just two different OMBs coming to two different decisions.”
Mazur added that it’s tough to see who’s being harmed by issuing refunds, though Congress could legally argue its power was being illegally usurped by the IRS unilaterally paying out refunds or employees could sue, claiming they were being illegally made to work without pay.
But so far, the IRS employees union and congressional Democrats are holding fire, waiting to see what the administration’s detailed guidance will be.
Asked if Democrats would sue the administration, as they have over some of Trump’s Obamacare-related orders, Hoyer said, “We can, but let’s see what happens.”
