As has happened numerous times in recent years, the possibility of a government shutdown is spotlighting several federal agencies, including the IRS, and raising questions about what services might be impacted. (More on that below.)
Now those questions are arising again, with talk of a possible temporary government shutdown if lawmakers don't reach a funding agreement in time.
Additionally, the IRS is already in the news, not only due to a shutdown threat but also because of significant changes in its operations and leadership.
The agency successfully launched its Direct File program, an IRS-run tax prep and filing service where some taxpayers can file their federal tax returns directly with the agency — for free. Direct File is available this 2025 tax filing season, though not all states are signing up for the service.
And given Republican control of the White House and Congress, it's hard to say what will happen to the program in the future.
IRS tax concerns
Under the Biden administration, the IRS had been cracking down on fraud and tax scams while having eased its moratorium on processing new ERC tax credit claims.
The tax agency also wanted to hire 3,700 new agents to audit complex returns, though, as Kiplinger reported, the agency hit some roadblocks partly due to a lack of interest in the accounting field.
In addition to ramped-up enforcement efforts, the IRS recently touted gains such as reduced processing times, faster tax refunds, shorter wait times for taxpayer phone assistance, and improvements with paperless processing.
However, the agency is facing new challenges under the Trump administration.
Trump's pick for IRS Commissioner is a former congressman and auctioneer, Billy Long. If confirmed, Long's background and limited tax expertise would mark a significant leadership shift.
Additionally, the IRS is grappling with funding cuts and potentially significant reductions in its workforce along with layoffs and an indefinite hiring freeze that could impact its ability to carry out modernization, customer service, and compliance initiatives.
So, a question has been whether IRS enforcement activity and process improvement would halt if the federal government shut down. And what services would be shuttered?
Here’s what you need to know.
Government shutdown March 2025?
Before looking at the specifics of the IRS contingency plan, it's important to note that the latest government shutdown, feared for December 2024 was averted.
- The next key funding deadline is March 14, 2025, for lawmakers on Capitol Hill to reach a continuing resolution to fund the government.
- On March 11, the U.S. House of Representatives passed a continuing resolution (CR) with a vote of 217-213.
- The bill now moves to the Senate, where it faces an uncertain future. At least 8 Democrats would need to join Republicans to pass the bill.
As of mid-March, the threat of a shutdown is moderate. The current funding expires in a few days as the Senate considers the House resolution. Political divisions are deep and the Republican-led Congress is focused on Trump's budget demands.
What happens if the government shuts down?
In a government shutdown, most federal agencies and workers experience some impact. All "non-essential" work is forced to stop. However, federal agencies have backup plans and essential services continue to function — at varying levels. For example, critical services like Social Security, Medicare, and Medicaid payments continue.
Of course, anytime the federal government shuts down, significant impacts ripple throughout the U.S., affecting people across the U.S. in different ways.
President of the National Treasury Employees Union, Doreen Greenwald, has emphasized that “a government shutdown is not a harmless, DC drama. Federal employees in every American community will lose income, through no fault of their own and, in many cases, they will be locked out of doing the work they were hired to do for the American people,” Greenwald stated in a release.
NTEU represents federal workers in 35 departments and agencies.
Does the IRS close during a shutdown?
Initially, it was assumed that the IRS would function as usual during a government shutdown, as its operations could be sustained through IRA funding.
Then, reporting indicated that the IRS would likely partially shut down and potentially furlough thousands of its employees, which would significantly impact agency operations. Now, the Treasury Department is reportedly indicating that IRS staff would continue working (more on that below.)
Last year, the U.S. Treasury Department released an Internal Revenue Service contingency plan. Under that plan, it appears that in the event of a shutdown:
- Most core tax administration activity would typically stop.
- Nearly 60,000 IRS employees could be furloughed.
- Some services could continue, normally supported by only about a third of the IRS workforce.
These are just a few aspects of the plan. But it's hard to know exactly how the IRS would implement its contingency plan and how that might impact you and your taxes. Luckily, there hasn't been a government shutdown during tax filing season.
Update: As of March 13, Bloomberg reports that all IRS employees will continue to work if the government shuts down Friday. This is according to a memo reportedly sent to agency employees from Acting IRS Commissioner Melanie Krause.
However, it's hard to say exactly how the Trump administration leadership, which separately just announced planned 20% IRS workforce cuts for just after tax season, would handle a shutdown.
As a result, as the March 14 deadline approaches, stay informed about any potential impacts on your fax filing process and prepare for possible delays in refunds or communications from the IRS.
Note: This story has been updated to reflect recent developments.
