THE IRS AND THE GOVERNMENT SHUTDOWN

THE IRS AND THE GOVERNMENT SHUTDOWN

What May be in Store for Taxpayers

The ongoing government shutdown illustrates just how deeply flawed our current tax system truly is. As of October 8, the IRS furloughed nearly half its staff, leaving taxpayers and practitioners exposed to one of the agency’s least discussed inefficiencies—its structural intolerance for disruption.​ Given the sheer scope and reach of the agency, citizens and businesses of just about every ilk could be negatively affected by what’s happening.

The IRS in Limbo

Under its updated contingency plan, the IRS is keeping just under 40,000 employees in the office—enough to maintain what it calls “essential operations.”Such operations include processing payments, maintaining the e-filing system, ensuring data security, issuing direct-deposit refunds, and continuing preparations for the 2026 filing season. But the most labor-intensive functions—the ones that require human judgment, attention, or discretion—are at a standstill. That means audits are suspended. Appeals are paused. Most collection activity that’s not automated has stopped. Even correspondence with taxpayers and practitioners mostly sits in a growing mountain of potentially unopened mail.​

The areas hit the hardest include the Large Business and International Division, the unit charged with examining multinational corporations, which lost roughly 74% of its staff to furloughs. The Small Business and Self-Employed Division saw 67% of its workforce cut. In the Tax-Exempt and Government Entities Division, 84% of its people were sent home.

And while taxpayer assistance and processing functions have slowed dramatically, taxpayers’ obligations have not. The IRS has repeatedly emphasized that return filing and payment responsibilities remain unchanged.​ So, regardless of whether the Congress and the IRS are doing their jobs, you still must pay your taxes. 

What is the “Contingency Plan”?

The phrase “contingency plan” sounds orderly and prepared, but in practice it translates to bureaucratic paralysis. For the first five days of the shutdown, the agency relied on Inflation Reduction Act funds to keep payroll flowing. By October 8, those funds were no longer sufficient to maintain full operations. Thus, the furloughs began in earnest. This time, the administration didn’t stop at temporary cuts. About 1,300 IRS employees will permanently lose their jobs as part of a government-wide reduction in force (RIF). This is on top of the 25,000 employees lost since February of this year.​

Note, however, that various federal government employees unions, including the Treasury employees union, filed suit in federal court in California challenging the administration’s actions. As of this writing, a federal judge in San Francisco issued a temporary restraining order prohibiting the administration from following through on the firings. The case is already on appeal. See: AFGE v. OMB, N.D. Cal. No. 3:25-cv-08302 (Oct 15, 2025).

If the IRS could not manage agency functions efficiently when flush with billions in new funding, it certainly cannot now amid austerity and shutdown. What’s unfolding is more than an administrative slowdown—it’s an exposure of the failure to prioritize real taxpayer service over the bureaucratic appetite for expansion. It’s the exposure of so-called “mission creep,” a concept that explains why the IRS is spread so thin. The growing problem is that that agency is asked to perform countless duties that have nothing to do with its core mission of enforcing and administering the nation’s tax laws. 

The Consequences for Taxpayers

Most taxpayers will likely notice only minor delays in electronic refund processing. However, the deeper impacts will multiply as the shutdown drags on. The Office of the Taxpayer Advocate has largely closed, leaving only 93 staff on hand to process cases nationwide. The Taxpayer Advocate’s office is an essential service to assist taxpayers who are experiencing hardship as a result of IRS actions (or inaction). Go to the Taxpayer Advocate’s website and you’re met with a message that says, “…all Taxpayer Advocate Service offices across the country are closed.” See: www.taxpayeradvocate.irs.gov/contact.

Moreover, dockets have been disrupted for cases in the U.S. Tax Court. Trial sessions for the weeks of October 20 and October 27 have been canceled. Decisions are made on a week-to-week basis on whether further sessions will likewise be canceled. See: ustaxcourt.gov. This means that all settlement negotiations are also stalled, meaning that pending cases (including a case I have currently before the court) will not be resolved any time soon.

For small businesses waiting on Appeals Office resolutions, initial audit decisions, OIC appeals, or audit redeterminations, long delays could be egregious. Every day without movement translates to uncertainty, and uncertainty is a tax in itself.​Meanwhile, to the extent that one owes taxes, penalties and interest continue to accrue on unpaid balances.

The system runs on unforgiving automation: if you owe, the clock ticks relentlessly. If the IRS owes you, well, you just have to wait them out.

Ongoing Political Theater …

Beyond the Shutdown…

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