How a Government Shutdown Affects the IRS and Taxpayers

How a Government Shutdown Affects the IRS and Taxpayers

When the federal government shuts down, many agencies pause or scale back operations. This year, the IRS is initially continuing normal operations, thanks to a temporary contingency plan. However, that stability may be short-lived. According to BDO, the IRS is “fully staffed for now,” but only for the first five business days of the shutdown. After that, taxpayers could start feeling the ripple effects.

Here’s what’s happening now — and what it may mean for taxpayers.

The IRS Is Using Special Funds to Stay Open (Temporarily)

The IRS is keeping staff in place by tapping into funds from the Inflation Reduction Act (IRA), which aren’t tied to the normal budget process. This allows the agency to temporarily continue critical operations even while the rest of the government is paused.

But there are two big caveats:

1. This staffing plan is time-limited — it only covers the first five business days of the shutdown.
2. Much of the IRS’s enforcement funding from the IRA has already been rescinded, leaving less cushion if the shutdown drags on.

If Congress doesn’t reach a funding deal soon, the IRS will have to decide which functions are “essential” and furlough the rest. That’s when taxpayers may begin to experience significant slowdowns.

Refunds and Return Processing: For Now, Still Moving

The good news is that electronic returns and direct deposit refunds are still being processed. The IRS’s goal is to keep these core services uninterrupted.

However, delays are still possible if staffing changes kick in after the initial five-day window — especially for paper returns, amended returns, or anything requiring manual intervention.

Tip: File electronically and use direct deposit to minimize your risk of delays.

IRS Support Could Become Harder to Reach

Right now, live help lines and walk-in centers are open. But if the shutdown persists, these services may slow or temporarily close as staff are furloughed. That means:

• Longer wait times on the phone
• Slower responses to written inquiries
• Delays in resolving audits or notices

Tip: If you need to engage with the IRS, do it early. Don’t wait until operations are scaled back.

Guidance and New Rules Could Stall

BDO notes that the IRS may also face delays in issuing new guidance and regulations, including pending provisions under recent tax legislation. This could affect businesses and individuals waiting on clarity for complex filings or new programs.

Filing Deadlines Stay the Same — Even During a Shutdown

A government shutdown does not delay your legal filing or payment obligations. Deadlines remain intact. The IRS expects taxpayers to file and pay on time, even if their ability to get help is limited.

Tip: Double-check your returns and keep copies of all submissions and correspondence. Documentation is your best protection if follow-up is delayed.

If the Shutdown Lasts, Expect Backlogs

Past shutdowns have shown that even a short lapse in funding can lead to weeks or months of processing backlogs once operations resume. Returns, refunds, audits, and taxpayer assistance all pile up quickly.

Key Takeaways

• The IRS is fully staffed for now, but that status hinges on a five-day contingency plan.
• Refunds and core processing are continuing, but service disruptions could follow if the shutdown continues.
• Filing deadlines are unchanged. Electronic filing and good record-keeping are more important than ever.
• If you need IRS assistance, act quickly before potential furloughs kick in.

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