WHAT HAPPENS WITH TAXES IF THE FEDERAL GOVERNMENT SHUTS DOWN?

A Federal shutdown will delay tax refunds for taxpayers who file their returns on paper rather than electronically. The IRS states that electronically filed returns have their refunds processed automatically. The April 18 tax deadline is still in effect for filing 2010 returns. So do not delay if you have not yet filed your tax return. Filing late with a tax due will incur both late filing and late payment penalties.

The length of the delay will be dependent on how long the shutdown lasts. Last year, one in three taxpayers filed paper returns. Though with the new electronic filing mandate for professional preparers, that number will be lower for 2010 returns.

This time of year, the IRS is flooded with returns ahead of the April 18 deadline. Normally it takes six to eight weeks to process paper returns and send refund checks to taxpayers via the U.S. mail. Refunds claimed with electronic returns and direct deposited into taxpayers’ bank accounts are often paid within a week or so. The IRS did not address whether electronic returns that call for refund checks to be mailed would be affected if Congress fails to fund the IRS.

The IRS stated that audits and customer service for taxpayer questions may be delayed during the government shutdown period. However, customer service for taxpayer questions may also be affected.