By Alan K. Ota

Law360 (June 16, 2020, 5:35 PM EDT ) Negotiations over the next pandemic response bill and another round of potential relief payments carry big stakes for the IRS, as lawmakers could grant the agency additional funding while tasking it with overseeing another delay of the tax filing deadline.

Treasury Secretary Steven Mnuchin has emphasized that the administration continues to give serious consideration to a proposal in the House-passed $3 trillion Health and Economic Recovery Omnibus Emergency Solutions Act calling for more economic impact payments of $1,200 per individual and $2,400 for a married couple, plus $1,200 apiece for up to three dependents, subject to earnings caps.

In the Senate, Majority Whip John Thune, R-S.D., said he expected to hold talks with the administration on another round of economic impact payments that would include related support measures for the Internal Revenue Service. The Coronavirus Aid, Relief and Economic Stability Act , which authorized the first round of payments when enacted on March 27, included an IRS funding upgrade of $500.7 million, or 4.4%. Just before the law was passed, Thune, who chairs the Finance Taxation and IRS Oversight Subcommittee, introduced a proposal on March 19 to move the tax filing deadline from April 15 to July 15, and the next day Mnuchin announced he was "moving Tax Day" to July 15 after an airing of concerns by lawmakers.

"Those are possibilities," Thune told Law360. "I don't think anything is off the table. No decisions have been made. There will be a negotiation with the White House, and Republicans, and then hopefully, eventually, the Democrats."

Lawmakers will also hold talks over Democratic-favored relief measures, such as expanded tax incentives for families with children, and GOP business incentives, such as expanding temporary full expensing of business equipment and limits on pandemic liability lawsuits, before the July 31 expiration of expanded jobless aid.

Whatever happens, Senate Appropriations Chairman Richard Shelby, R-Ala., and other senior lawmakers say they plan to adjust IRS funding to keep pace with its responsibilities related to the outbreak of the virus, which causes COVID-19, a respiratory disease.

"We will deal with it as we go," Shelby told Law360.

Meanwhile, deliberations on the agency's longer-range needs and President Donald Trump's fiscal 2021 budget proposal for the IRS remain on hold, for now, because of delays in appropriations hearings and markups.

While appropriators discuss immediate IRS funding needs, House Ways and Means Chairman Richard Neal, D-Mass., and Senate Finance Chairman Chuck Grassley, R-Iowa, have been developing economic recovery plans and have left open the question of whether there will need to be any changes in IRS operations, including the timing of the tax return filing deadline.

"It's something that could be on the table," Grassley told Law360, referring to the possibility of another package with payments and a discussion of the tax filing deadline.

"What we did eight weeks ago, we did with open eyes," Grassley said. "And if things didn't start to turn around, we might end up doing the same thing."

Grassley has been working on a possible Senate GOP response to the Heroes Act. Sen. Ron Wyden, D-Ore., the Finance Committee's ranking member, said he would consult with Grassley about whether the agency needs more leeway to complete the tax filing season.

"I will look at it. Both of us would need some time to look at the implications," Wyden told Law360.

The Heroes Act would provide the IRS with a funding upgrade of $520 million to respond to the novel coronavirus pandemic and an extended filing season, but it would make no changes to the current tax filing deadlines.

The National Treasury Employees Union, which represents IRS workers, has backed the extra IRS funding in the Heroes Act and has stood by its request from March to move the tax filing deadline to Oct. 15 because of concerns about workers being able to maintain adequate social distancing in some IRS offices.

"By giving the agency more time, it would allow for a more gradual call back of employees at IRS facilities that process tax returns," NTEU President Tony Reardon told Law360 in a statement.

Lawmakers say any discussion of postponing the filing deadline would need to take into account impacts on the IRS and its workers as well as stakeholders including state and local governments, whose own revenue collections often are tied to the federal tax filing timetable.

Mark Everson, a former IRS commissioner and now vice chairman of Alliantgroup LP, said enacting another change in the tax filing deadline would place further stresses on the agency.

"I'm not in favor of a further delay," Everson told Law360. "The backlog of work at the IRS is growing. Allowing this year's filing season to almost overlap with next year's filing season would be tough for this agency to pull off."

The debate over more economic impact payments — combined with more IRS funding and a possible extension of the tax filing season — takes place amid a broader partisan feud over whether the next pandemic response bill should emphasize relief measures backed by Democrats or GOP incentives for businesses, including a shield against COVID-19 liability lawsuits. In talks on the CARES Act, House Democrats agreed to an IRS funding increase that was 20% less than they had sought.

For the next coronavirus bill, some Democrats favor generous IRS upgrades to make up for past budget cuts, which reduced the agency's funding from a peak of about $13.9 billion in fiscal 2010 to a roughly flat level of funding ranging from $11.7 billion to $11.5 billion over the last six years.

"The IRS needs to catch up. They need a lot more funding. They need a lot more assistance, modernization and enforcement," said Rep. Mike Quigley, D-Ill., chairman of the House Appropriations Financial Services and General Government Subcommittee.

On the other side, Republicans have said they envision a rapid recovery, curbing the need for additional coronavirus relief measures and extra funding for the IRS. While they have agreed to fund certain coronavirus-related programs, some Republicans have questioned the need for going much beyond the $11.5 billion provided to the IRS in the fiscal 2020 omnibus spending law enacted last December.

"They have sufficient funds to work with. Let's let that process play out a while," Rep. Tom Graves, R-Ga., ranking member on Quigley's panel, told Law360.

Whether there is an accord on more economic impact payments or not, former IRS Commissioner John Koskinen said that the agency now has built a system to help process and police impact payments and that it probably will not need another postponement of the tax filing deadline. He warned that another extension could interfere with IRS efforts to adjust and test systems after the current filing season to prepare for the next one.

"It would complicate their life unnecessarily at this point," Koskinen told Law360.

But he also made clear he expected the agency to deliver on any new coronavirus assignments from Congress.

"Whatever Congress asks the IRS to do will get done," Koskinen said.

Treasury and the White House did not immediately respond to requests for comment.

--Editing by John Oudens and Neil Cohen.

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