The IRS has shared its shutdown contingency plan, with an agreement on Fiscal Year 2026 federal funding looking unlikely before the October 1 deadline.
A shutdown seemed inevitable Tuesday evening as the midnight funding deadline approached and parties stood firm on their positions. While a continuing resolution to fund the government through November 21 passed the House, it had not gained enough support in the Senate as of press time. Democrats’ top demand was an extension of the soon-to-expire enhanced Affordable Care Act premium tax credit.
Federal agency contingency plans trickled out early this week, including from Treasury. The IRS’ plan covers activities for the first five business days after a funding lapse – leaving open what will happen after that time. It appears to be modeled after the March 2025 plan released during the last government funding showdown.
The current plan differs from the March plan, however, in how employees are accounted for during the non-filing season. (The filing season is defined as January 1 to April 30.) The latest plan classifies all employees as Category A1 for both the filing and non-filing seasons, implying full continuity. The March plan listed “0” Category A1 employees for the non-filing season.
Under both plans, Inflation Reduction Act funding would be used to provide operations continuity.
The current plan also shows the striking difference in IRS employee headcount – 74,299 versus 95,486 back in March. The reduced headcount is based on the employee population as of July 24, adjusted for the Deferred Resignation Program.
Treasury’s separate Departmental Offices plan cautions that offices “must be prepared” for “a significant reduction in DO operations during a short hiatus (1-5 days).” Of 2,714 employees, 1,855 would be retained in a shutdown. The plan indicates that additional staff could be recalled if a funding lapse exceeds five days.
On the Departmental Offices plan’s list of “significant agency activities that will continue during a lapse” are “Tax Policy regulatory and IRS oversight responsibilities funded through the Inflation Reduction Act of 2022.” Specifically, the Office of Tax Policy would, during a funding lapse, continue to conduct work related to One Big Beautiful Bill (P.L. 119-21) implementation. It also would continue to “develop policies to restore appropriations” and provide related revenue estimates and analysis.
The American Institute of CPAs had urged Treasury Secretary and acting IRS Commissioner Scott Bessent to release an IRS contingency plan in a September 29 letter. The group recommended that the IRS except all employees, or at a minimum, “retain more essential IRS employees during the extended and upcoming filing season than occurred in prior government shutdowns.”
While this latest shutdown does not fall in the January to April filing season, the AICPA cautioned that it “will impact the timely processing of extended 2024 tax returns due by October 15, 2025, tax-exempt organization returns due November 17, 2025, and expatriate tax returns due December 15, 2025.”
Beyond return processing delays, the group said IRS furloughs could delay the issuance of “critical guidance” implementing the many tax provisions of the One Big Beautiful Bill.
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