Impact of a Government Shutdown on the Internal Revenue Service Operations
The Internal Revenue Service (IRS) is currently under scrutiny due to the looming threat of a government shutdown and changes in its operations and leadership.
Recent developments have highlighted improvements in the IRS, such as reduced processing times, faster tax refunds, shorter wait times for taxpayer phone assistance, and improvements with paperless processing. However, these improvements may be overshadowed by the potential impact of a government shutdown.
The latest government shutdown, feared for March 2025, was averted, but Congress has yet to finalize a new funding agreement, increasing the threat of a shutdown as the deadline approaches. In such a scenario, the IRS may partially shut down and furlough thousands of its employees.
The IRS may continue to function during a shutdown, with IRS staff expected to keep working, according to recent reports and a memo from former acting IRS Commissioner Maline Krause. However, most non-essential services, including processing of tax returns and refunds, taxpayer assistance, and enforcement activities, would be suspended.
The future of the Direct File program for the upcoming filing season is uncertain due to Republican control of the White House and Congress. The IRS launched its Direct File program, an IRS-run tax prep and filing service, for the 2025 tax filing season, but not all states are signed up for the service.
The IRS is grappling with a revolving door of senior officials, funding cuts, and significant workforce reductions. These challenges could impact its ability to carry out customer service responsibilities and implement new tax bill initiatives. In the first eight months of Trump's second term, there have been seven acting IRS commissioners.
The extent to which the Trump administration would handle a shutdown now is unclear. The U.S. Treasury Department has a contingency plan for the IRS, which includes the potential furlough of nearly 60,000 IRS employees.
Under the Biden administration, the IRS had been cracking down on fraud and tax scams. However, the IRS wanted to hire 3,700 new agents to audit complex returns, but hit roadblocks due to a lack of interest in the accounting field.
In a government shutdown, most federal agencies and workers experience some impact, but essential services like Social Security, Medicare, and Medicaid payments continue. A question has been raised about whether IRS enforcement activity and process improvement would halt if the federal government shuts down and what services would be shuttered.
Treasury Secretary Scott Bessent is currently handling IRS operations. The story has been updated to reflect recent developments, with the next key funding deadline for the government being September 30, 2025. The IRS Shakeup, the Big CPA Shortage Problem in Accounting, and Trump's 'Big, Beautiful Bill' with trillions in tax cuts are related topics that continue to evolve.
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