Your Taxes and the Federal Shutdown: IRS Closing Explained

The IRS will maintain limited operations in the event the government shuts down Oct. 1, potentially creating further setbacks for taxpayers trying to resolve what they owe and limiting companies waiting for regulations.

About 60,000 of 90,000 IRS employees will be furloughed without pay, according to the agency’s plan released Thursday. The remaining one-third of the workforce will continue necessary work for the “safety of human life or protection of government property” and will be paid using funds from the Inflation Reduction Act, special compliance funding, and user fees.

It’s looking more likely Congress won’t be able to reach a short-term agreement to fund the government. The shutdown, as a result, could exacerbate an existing backlog the IRS is trying to eliminate.

While the IRS will be able to prepare for the next filing season, taxpayers won’t get their questions answered over the phone about their returns or collections, and refunds won’t be processed unless they were filed electronically without mistakes.

Here’s how the IRS and the US Tax Court will operate during a shutdown.

1. Will the US Tax Court remain open?

The US Tax Court will be open for “business as usual” and will continue operations indefinitely, US Tax Court Special Trial Judge Jennifer Siegel said in an email.

Trial sessions will also continue as scheduled.

2. What is the status of other IRS locations?

Most headquarters and administrative functions will be closed during a government shutdown, the plan for fiscal year 2024 said. All 363 taxpayer assistance centers will close and taxpayers won’t be able to reach the IRS over the phone.

In October 2022, the centers served about 5,000 taxpayers a day and the IRS received about 46,000 phone calls a day, according to the Treasury Department.

Employees with the Taxpayer Advocate Service—an independent organization within the IRS—will continue to work to carry out the “excepted activities necessary for the protection of property.” Local taxpayer advocates will check mail up to three days a week to meet “the IRS’s requirement to open and process checks during a shutdown.”

3. What happens to collection notices, audits, and refunds?

All audits, examination of returns, and non-automated collections will be halted. The IRS in May paused its automated collection notices and has yet to start the process again.

Although about 10.5 million individual 1040 filers have an extension through the Oct. 16 deadline, only e-filed mistake-free refunds can be processed.

The IRS won’t respond to paper correspondence but will continue mail processing. Once the IRS reopens, the agency may have a delayed response to the mail received during the shutdown due to the backlog, Treasury said.

As of June, the IRS had made a dent in its backlog, reducing it by 80% from 13.3 million returns at the end of the 2022 filing season to 2.6 million at the end of the 2023 filing season, according to a report to Congress.

Other efforts that will continue include hiring for the filing season, processing requests for transcripts following disasters, providing income verification to mortgage lenders, banks, and others, and maintaining IT systems to protect taxpayer data.

4. Will the IRS still issue regulations?

Companies may have to wait a little longer to get guidance they were expecting this year, including regulations on the sustainable aviation fuel tax credit and the highly anticipated hydrogen tax credit.

The IRS will still work on the energy provisions from the Democrats’ Inflation Reduction Act, but there may still be some change to the timeline for releasing the guidance, Treasury said.

The agency also will continue activities to implement the direct-file pilot program and the Strategic Operating plan, which laid out how the IRS will use its funds from the law to ramp up enforcement efforts and modernize the agency.

The contingency plan didn’t specify the impact on all other regulatory projects. In past government shutdowns, efforts regarding regulations would be suspended.

Read More:

• IRS to Partially Close, Furlough Staff in Federal Shutdown
• IRS to Stay Open in Government Shutdown, Early Talks Suggest (1)
• Dealing With the IRS During the Shutdown? Keep the Receipts