How a Shutdown Will Hit the IRS and Tax Law Rules, Explained

Lawmakers failed to reach a deal before midnight to keep the government funded, but the IRS game plan provides for five days of “normal” operations, with all current staff on board.

What happens after that is less clear.

Billions in funding from the Democrats’ 2022 tax-and-climate law is helping the IRS stay open for the first week of a lapse in appropriations. Republicans want a straight extension of current funding, while Democrats are demanding a batch of fiscal policy changes centered on health care.

While the Treasury Department Monday released a contingency roadmap that said the IRS will retain all employees and stay funded for five days, questions remain about what happens after then, and how regulations and the tax season might be impacted.

Here’s what we know about the potential implications.

1. What makes this shutdown different for the IRS?

The contingency plan said that all employees—roughly 75,000—will continue working in the event of a government shutdown for the first five days. That mirrors a plan from March when the IRS was in the middle of filing season and before the Trump administration prodded more than 20,000 employees to retire or otherwise leave the agency.

Funds from the tax-and-climate law have also significantly shrunk from its initial almost $80 billion the agency received in 2022. Republicans have clawed back most of the enforcement funds, and the total bucket of unspent funding sits at about $22 billion as of June.

The remaining cash is outside the annual appropriations process and can be used until Sept. 30, 2031, the IRS has determined. Previous plans signaled the IRS couldn’t use the supplemental funding during a shutdown.

The Office of Management and Budget also told agencies ahead of a potential shutdown they should consider a reduction-in-force in programs not legally required to continue. The Treasury plan doesn’t mention a RIF, though Treasury Secretary Scott Bessent said in August—before a government shutdown became a reality—there wouldn’t be one in the foreseeable future. Several other agencies also didn’t mention a RIF in their plans.

While it’s not the middle of filing season, this time of year still brings challenges. The IRS has started writing rules around President Donald Trump’s multitrillion-dollar tax-and-spending package and is bracing for the Oct. 15 deadline for individuals and companies that plan to seek an extension to file their taxes.

2. How will the tax season be impacted?

The upcoming tax season is the first since Trump’s re-election, and comes as the agency operates with no confirmed commissioner and on top of an exodus of agency leaders.

If a shutdown continues beyond the five days allotted and the IRS chooses to change its plan, forms and systems that must be updated could be delayed, especially with the new additions from the GOP tax law. The agency could delay the extension deadline for filers, too.

It’s also a critical time for the IRS to coordinate with tax preparation software companies ahead of filing season.

The IRS typically hires hundreds of seasonal workers to staff help centers ahead of the tax filing season. A government shutdown could delay that hiring process as well as openings posted for chief counsel and other roles where they’ve found themselves short after pushing so many workers to take resignation offers.

Still, with past shutdown plans, employees critical to filing season preparation are kept on and not furloughed.

3. What about the implementation of the 2025 GOP tax law?

Several provisions of the 2025 tax law are retroactive and will apply for the upcoming filing season, leaving the IRS with a long list of priorities and tight deadlines.

Guidance is still anticipated on new rules for tax breaks on overtime and car loans, for example.

Typically work for the implementation of a tax law continues even if the IRS furloughs workers. In contingency plans following the passage of the tax-and-climate law, the agency said it would continue to work on guidance related to law though the timeline of issuing some of the guidance could be impacted. The government didn’t shut down in that case.

Read More:
IRS to Keep Normal Operations for Five Days in Shutdown Plan (2)
All IRS Employees Will Keep Working if Government Shuts Down (1)
IRS to Partially Close, Furlough Staff in Federal Shutdown (2)
Tax Season Could Still Be ‘Ugly’ as 57% of IRS Workers to Return