White House rules IRS can issue tax refunds during shutdown, aims to bring back agency employees

By Damian Paletta ,  Jeff Stein and Juliet Eilperin

January 7 at 6:50 PM

The White House on Monday directed the Internal Revenue Service to pay tax refunds to millions of Americans during the federal shutdown, marking its most dramatic reversal yet of past legal precedent as officials scramble to contain public backlash from the funding lapse.

Last year, and during previous administrations, the IRS said it would not pay tax refunds during a government shutdown. But Trump administration lawyers ruled Monday that the refunds could be processed after all, a move that some Democrats called legally dubious.

The decision could prove extremely consequential for U.S. households and the U.S. economy. Last year, between Jan. 29 and March 2, the IRS paid more than $147 billion in tax refunds to 48.5 million households.

But it is also the latest in a string of sudden shifts and legal reversals that have seen the White House reverse precedent in the face of public pressure. Senior administration officials changed rules to pay Coast Guard salaries in December, restart an IRS program to clear mortgage applications and reopen some national parks. They are now searching for ways to prevent the nation’s food assistance program from running out of money. Unless the shutdown ends, the program lacks funds to cover expected demand in February. By March, it would be out of money entirely. A new legal ruling on the issue could come this week.

“We have tried to make this as painless as possible consistent with the law,” White House Office of Management and Budget acting director Russell Vought said at a White House briefing, describing the White House’s approach to managing the shutdown.

President Trump has threatened to continue the partial federal shutdown for months, much longer than past lapses have endured.

A group of federal employees in Maryland say the partial government shutdown has left them scrambling for money, and they blame President Trump. (Lee Powell/The Washington Post)

Government shutdowns force affected agencies to severely curtail their operations, sending workers home without pay and eliminating certain services and programs.

Instead of following a set plan, though, the White House has constantly adjusted the way it is managing the shutdown, seeking to change operations when there are complaints from businesses or public groups.

“You’ve got programs that have different capacities to weather shortfalls in funding, and some of them can’t weather this at all,” said Douglas Holtz-Eakin, a Republican and former director of the Congressional Budget Office. “This is what you get,” he added, referring to the shifting management of the shutdown.

Trump had signaled to many White House officials in mid-December that he would back down from his threat to shut down parts of the government over his demand for border-wall money, but he changed course two days before the lapse was set to begin.

This caught many White House officials flat-footed, as several Cabinet secretaries and agency leaders left Washington over Christmas week for vacations and other travel. Some others have worked to contain the fallout by reversing policies multiple times in recent days.

Weekend shutdown talks end without progress
Weekend negotiations between the White House and congressional Democrats ended without a resolution as the partial government shutdown entered its third week. (Reuters)

None of the decisions, though, have been as consequential as the tax refund change. The average tax refund paid during February last year was more than $3,000, and allowing that money to be paid could prevent an outcry from many taxpayers. Near the tax filing deadline last April, the IRS paid out $243.6 billion in refunds to 86 million households.

A number of Democrats on Monday said the White House’s decision was purely political.

“I think carving out this exception for political reasons is another blow to morale” among federal workers, said Rep. Gerald E. Connolly (D), whose Northern Virginia district includes many government workers.

Sam Berger, who worked in the general counsel’s office at the Office of Management and Budget during a shutdown under the Obama administration, said the decision reverses years of precedent and runs contrary to the Antideficiency Act, the law establishing that federal agencies cannot spend money that has not been authorized by Congress.

“What we’re seeing now is an effort by the administration to ignore legal views, to basically put aside the law and limit the political impact of what’s going on,” he said.

Since this shutdown began Dec. 22, the IRS has sent home 90 percent of its staff without pay, something that was scheduled to continue indefinitely until Congress appropriated new funds.

Tax refunds aren’t paid with money appropriated by Congress, but the workers who process the refunds are. Tax refunds have stalled during past shutdowns because there were no workers to process them.

The IRS employees who are brought back in the coming days to handle tax refunds will not be paid until the shutdown ends.

“There is a pot of money to pay refunds, but there is not a pot of money to do the work to actually pay the refunds,” Berger said.

He said the Trump administration’s IRS decision could be found to violate the Antideficiency Act, which could carry fines or criminal penalties.

But White House officials said they were trying to do everything they could to minimize the shutdown’s impact on American households and businesses. Trump “has directed OMB to take steps to mitigate the impact of the shutdown on everyday Americans,” Vice President Pence told reporters at a briefing.

A senior OMB official said the agency determined that processing tax refunds was similar to paying Social Security benefits, something that is allowed during government shutdowns because Congress’s intent was for these payments to continue.

These legal decisions come in the midst of a constantly changing political strategy in the White House over how to manage the shutdown. Trump asked senior advisers Sunday for a way to end the government shutdown that didn’t make him look like he was capitulating to Democrats, according to a senior White House official who spoke on the condition of anonymity to talk about the matter freely. But he’s also planning on giving a prime-time address on border security Tuesday and visiting the U.S.-Mexico border Thursday.

As Trump continues to say publicly that he will allow the shutdown to drag on for months, some White House officials have become increasingly worried about eroding political support. They have cited, specifically, concerns about airport security workers, who could opt to stay home, or fears over whether food assistance payments will be slashed next month.

And 800,000 federal workers are scheduled to miss their first paychecks in the coming days, another flash point the White House has been eyeing warily. “People are going to start feeling the pain by the end of the week,” the senior White House official said.

This concern has fueled Trump’s directive that the OMB do what it can to minimize the impact, although the implementation has been uneven.

The Bureau of Land Management, for example, continued to accept applications for permits to drill for oil and gas and requests for well inspections in several states, including Montana and New Mexico. It also held public scoping sessions about its plan to open the National Petroleum Reserve-Alaska in the towns of Utquiagvik and Nuiqsut late last week.

“BLM has locked the public out of restrooms, visitor centers, and at least one lighthouse because of the government shutdown,” said Kelly Fuller, energy and mining campaign director at the advocacy group Western Watersheds Project. “Why isn’t the oil and gas industry locked out, too?”

A BLM official said Monday in an email that the agency is continuing to process permit applications because they are an “exempted activity during a lapse in appropriations.”

John Leshy, who served as Interior solicitor during the Clinton administration, questioned the legality of the move and said it was a break with past practice. “At minimum you’ve got to have a smell test on what you consider essential government activities,” he said. “To just pursue activities that benefit your political base, that’s really suspect.”

The proliferation of these decisions has struck some government experts as legally questionable, though they are unlikely to be challenged by Trump’s Justice Department.

John Koskinen, a former IRS commissioner, said Social Security payments have long been allowed during shutdowns because they are considered essential to protecting “life and property.” Typically, IRS refund payments have not been considered part of that category, he said.

Koskinen doubted the similarity between the two federal expenditures, noting that many Americans rely on monthly Social Security to survive, while IRS refunds are typically a one-time payment.

“It’s a different kind of animal,” Koskinen said. “Delaying Social Security payments are, almost by definition, more likely to threaten life because they go to the elderly and disabled who depend on them on a regular basis for food and medicine. Delaying IRS refunds may be inconvenient.”

Erica Werner, Lisa Rein, Philip Rucker and Josh Dawsey contributed to this report.