Treasury posts IRS contingency plan for government shutdown

The Treasury Department posted a contingency plan Monday for the Internal Revenue Service in the event of a government shutdown this week.

The plan estimates up to half a workday would be needed to complete shutdown activities. The total number of IRS employees expected to be on board before implementation of the plan is 74,299 as of July 24, adjusted for the Deferred Resignation Program, the voluntary buyout program that was offered to IRS employees earlier this year before the IRS decided to reverse course. However, that number is still down about 25% from the approximately 103,000 employees who were working at the IRS in February. While those 74,299 employees would be on "pay status," the plan also says 407 employees may be on "non-pay status."

Calls began to mount last week for the latest contingency plans amid concerns about the impact on taxpayers and tax professionals. Former IRS acting commissioner Doug O'Donnell, who is now a senior managing director of KPMG's Washington national tax practice, discussed the possible impacts during a LinkedIn Live session last Thursday.

 "If you don't have appropriated funds of some manner, the agencies can't operate," he said. "And in the instance of the IRS, if there's a budget lapse, what ends up happening is that there are a number of activities that are not considered to be essential, and those activities do not continue. And it's important to understand what those are. And it's useful to have what the contingency plan is that the agency puts together because they'll spell out what those activities are, the numbers of people that will be available and the services that will be available."

Some activities apparently would continue by drawing on funds from the Inflation Reduction Act, with the plan stating, "Operations will continue with IRA funds." There is little detail about which activities would continue, but states, "During a lapse, the IRS may continue certain activities that fall under established exceptions to the Anti-Deficiency Act."

On Monday, before the plan was posted, the American Institute of CPAs urged the IRS to announce its contingency plan in preparation of a government shutdown. The shutdown is expected to begin on Oct. 1 at midnight unless Democrats and Republicans in Congress can agree on a continuing resolution to keep the government open. President Trump is scheduled to meet with congressional leaders on Monday after canceling plans for a meeting last week.

In the letter, the AICPA suggested the IRS reinstate a plan similar to the Fiscal Year 2025 Lapsed Appropriations Contingency Plan that was released on March 14, 2025, which excepted all IRS employees, and noted that if a similar contingency plan will not be reinstated, the government should retain more essential IRS employees during the extended and upcoming filing season than occurred in prior government shutdowns.

The AICPA expressed concerns over the detrimental impact of a shutdown, saying, "We are concerned that an October government shutdown 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, which has happened previously with prior government shutdowns… Furthermore, a government shutdown may significantly delay the upcoming filing season that would normally start mid-January 2026 and the issuance of critical guidance implementing [the new tax law]."

The AICPA noted that a shutdown at this time would have a significant impact on taxpayers' and tax practitioners' ability to file returns timely, pay taxes, obtain refunds and contact the IRS with questions or issues.