What Happens to IRS During the Shutdown?
The IRS announced they have 5 days of funding during the shutdown.
After that, funding will end, Nobody knows what the IRS intends to do if there is a shutdown in October. The Treasury has deleted all prior Lapse Appropriations Contingency Plan documents from their website. The 2024 report suggested 30% of IRS employees would be critical and not subject to furlough.
Most IRS employees will be furloughed but even essential IRS employees may not show up as they aren’t receiving a paycheck. Here are my thoughts about what will happen:
Tax Day Is Still October 15
First of all, taxpayers have to realize all tax filing deadlines and tax payment deadlines continue to apply. October 15 is the deadline for individuals and corporations that timely filed for an extension. November 15 is the deadline for nonprofits on extension and for nonprofits with a June fiscal year-end.
The IRS will be accepting all tax returns filed electronically or through the mail.
Paper returns will be accepted but there may be limited (or no) staff to process them. If a shutdown lasts for a long time, this will dramatically increase the IRS backlog which still hasn’t recovered from the Covid shutdown. In fact, the IRS admitted that during Covid they trashed paper Form 1099s instead of processing them because they were so overwhelmed.
Refund Processing
The IRS will generally process and issue refunds for electronically filed individual returns that requested direct deposit. This was the procedure during the last shutdown. However, who knows what happens to direct deposit refunds if the DOGE cuts and the removal of the funds appropriated to the IRS from the Inflation Reduction Act.
Refunds requested by check for both electronically filed returns and paper returns will be on hold.
Payment Processing
The IRS and Treasury will continue to process payments from the IRS website and Treasury direct website.
Paper checks will continue to be accepted as these are processed by bank lockbox groups and not the IRS. However, for checks that are hard to identify (no payment voucher or missing taxpayer information), these checks will be in limbo as there will not be an IRS employee to assist. (Perhaps this is a critical function and this position is not subject to furlough.)
Correspondence
Paper correspondence (such as replies to tax notices) will not be processed.
Taxpayer Assistance, Audits & Collections
Limited telephone customer service functions will remain available (such as the efiling helpdesk), but IRS walk-in taxpayer assistance centers will be closed.
All appointments for audits, collection, Appeals or Taxpayer Advocate cases will be cancelled.
Many automated IRS notices will continue to be mailed but there will be no one around to process replies to these notices.
Determinations
The IRS TE/GE group is the Tax-Exempt and Government Entities division. This group will not be able to issue determinations related to new employer retirement plans or tax-exempt organizations (such as charities and other nonprofits).