IRS Releases Updates on Limited Operations as Government Shutdown Drags On

On September 30, 2025, the federal government’s fiscal year ended without Congress passing the necessary funding bills for the next fiscal year. As a result, the government has shut down, meaning most agencies have stopped or severely limited their regular functions. Normal functions cannot resume until Congress either passes a temporary funding bill (a continuing resolution) or a full-year appropriations bill. Among the impacted agencies is the IRS, which has already seen significant reductions to its workforce and is now operating at half capacity.

Key Takeaways

• The IRS is operating at half capacity due to the government shutdown, which began on October 1, 2025, and has resulted in significant delays in processing and changes to IRS operations, though automated online services remain accessible.
• As the shutdown continues, taxpayers may face longer wait times for refunds, delayed implementation of new tax provisions, and disruptions in IRS services
• The shutdown could continue indefinitely, with potential impacts on taxpayer compliance and preparation, making it important for individuals with complex tax situations to seek professional advice.

Immediate Impacts on the IRS

The IRS was able to temporarily continue operations after September 30, 2025, by using funds appropriated under the Inflation Reduction Act (IRA). These multi-year funds enabled the agency to stay open and carry out critical functions through October 8, 2025. The shutdown did not affect filing deadlines or taxpayer obligations, as returns, payments, and extensions remained due as scheduled. However, the IRS warned that, despite the deadlines remaining in place, taxpayers could face increasing delays in processing, correspondence, and enforcement actions.

IRS Lapse Plan – Updated for October 8

When IRA funds expired, the IRS implemented its updated lapse plan, effective October 8, 2025. Under the plan, only 39,870 out of approximately 74,000 employees will remain on duty, with the rest placed on furlough. The most significant reductions have occurred in the Large Business & International (LB&I), Small Business/Self-Employed (SB/SE), and Tax-Exempt/Government Entities (TE/GE) divisions. Approximately 1,039 employees continue to work in LB&I, 4,911 in SBSE, 249 in TE/GE, and 129 in appeals. These employees are primarily focused on urgent tasks such as implementing the One Big Beautiful Bill Act (“OBBBA”), wrapping up cases approaching expiring statute of limitations, maintaining essential taxpayer and IT systems, and other administrative functions.

The lapse plan emphasizes continuity for activity linked to the implementation of the OBBBA, as well as select functions necessary to sustain revenue operations and public safety. Still, furloughs have led to the suspension of many enforcement examinations and taxpayer service functions. The IRS’s 2025-2026 Priority Guidance Plan, which was issued just before the shutdown, outlined 105 projects, including 40 related to OBBBA implementation. Progress on these initiatives is now expected to stall, delaying critical guidance for both taxpayers and practitioners as they navigate significant tax law changes.

Other Impacts on Taxpayers

The shutdown affects more than just IRS operations. The U.S Tax Court has halted most proceedings, delaying trials and decisions, while the National Taxpayer Advocate’s office has reduced its capacity to assist taxpayers facing financial hardship or procedural issues. With fewer communication channels available and backlogs growing, taxpayers now face longer waits for responses, refunds, and case resolutions.

Looking ahead, the shutdown could disrupt the 2026 filing season if it continues. The IRS normally updates software, trains staff, and prepares systems during the fall, but a prolonged lapse in funding limits its ability to complete these tasks. As a result, taxpayers and practitioners should expect slower refund cycles, delayed implementation of new tax law provisions, and overall processing delays once filing season begins.

What is the Debate About?

The shutdown itself is mainly due to an expiring tax credit provision. Under the Affordable Care Act, individuals within certain income ranges can qualify for a tax credit to help cover the cost of their medical premiums, generally referred to as the Premium Tax Credit (PTC). As originally enacted, individuals with income of up to 400% of the federal poverty line (FPL) could qualify for the PTC.

COVID-era legislation enhanced the premium tax credit significantly. Under the changes, taxpayers can be eligible for the credit even if their income exceeds the FPL limits for their family size, provided their premium costs exceed certain limitations. This enhancement is scheduled to expire on December 31, 2025. However, open enrollment for 2026 coverage begins November 1, 2025. If the credits are not extended by that date, individuals signing up for coverage will not be able to apply the credit against their premium costs in advance.

How Long Will the Shutdown Last?

Many believe this may end up being the longest shutdown in Congressional history, exceeding the record set in 2019 of 35 days. How long the shutdown lasts will come down to political pressure reaching a point where one party has to compromise or risk political harm. Polling has generally shown Senate Democrats as being slightly ahead in public opinion on the shutdown, but that could change quickly if open enrollment begins with no legislative changes made. While there is ultimately no way to know for sure how long the government will remain shut down, taxpayers should prepare for the potential for the shutdown to stretch until Thanksgiving and possibly longer.

What Can Taxpayers Do in the Meantime?

The IRS has released some additional information regarding what operations and services are still available to taxpayers during this time. While many services are limited, taxpayers still have several options to maintain compliance, make payments, and reply to correspondence during the shutdown. Among other services, taxpayers can use IRS automated online services to pay balances, check their refund status, and apply for online payment agreements. Automated collections services, such as the ability to request a temporary delay in collections, may still be available.

Taxpayers should continue to file any returns that may be due during the shutdown, as the shutdown does not extend any due dates. While the IRS will not be responding to most correspondence, it will still be receiving mail and depositing any payments received. Any taxpayers with ongoing audits and correspondence with the IRS must ensure any mailed correspondence is timely sent and maintain certified mail slips to prove timely submissions.  Taxpayers who have meetings and hearings cancelled due to the shutdown may wish to take this time to bolster their arguments, gather further documentation, and meet with their advisors to plan.

The seismic staffing changes at the IRS, major changes to the tax code, and lingering impacts from the shutdown could cause a perfect storm for taxpayers. This environment makes it even more critical that taxpayers with complex tax problems engage a trusted tax advisor. Contact us below to see how we can assist you.