IRS Ceases Most Operations, Furloughs Employees Amid Shutdown

The Internal Revenue Service has begun to furlough employees and shut down most of its operations as the duration of the government shutdown has surpassed its contingency plan.

The agency announced that most operations closed on Wednesday, and it began to send furlough notices to its employees. According to the IRS’ updated contingency plan, the agency will retain 53.6% of its 74,299 employees, while the rest will be furloughed until the government reopens.

The updated contingency plan describes what activities will continue for the next five business days, and “in the event the lapse last longer than five days, we recognize that additional challenges may arise,” according to the plan.

The IRS will continue essential operations, including tax revenue processing, income verification services and support for legal functions related to Social Security and personnel management, according to the contingency plan.

Maintenance of IT infrastructure and law enforcement activities will also remain in place to protect taxpayer data and prevent fraud. Limited mail handling and compliance programs funded by non-expiring resources will proceed as necessary.

Meanwhile, during a government shutdown, several taxpayer services will cease to function, including most call centers and online support for general inquiries.

Non-automated collection efforts and enforcement activities that are not related to property protection will also be halted.

Functions related to legal counsel that do not pertain to ongoing litigation or exempt matters will stop, as will planning, training and development initiatives across the agency. Maintenance of information systems that are not associated with data protection or active filing season work will be suspended, along with administrative functions that are not connected to safety, remittance protection or exempt funding.

The lack of legal counsel could also contribute to anticipated delays when the government shutdown does end.

“So many of the senior IRS chief counsel lawyers and leadership have left,” says Lou Mazawey, a principal in Groom Law Group who advises employers on tax aspects of employee benefits. “We’ve been concerned that’s generally going to slow future guidance.”

The shutdown, for example, could delay the rollout of retirement plan contribution limits for 2026, which were published near November 1 last year. Still, deadlines for plan sponsors’ filings will remain unchanged, even if the agencies are slowed.

According to Mazawey, for guidance related to flexible spending account limits or indexed exclusions, employers can use provisional numbers and adjust later if updates arrive. Employers can also structure open enrollment flexibly to account for possible late updates.

Meanwhile, guidance priorities will likely focus on SECURE 2.0 and essential compliance rules once the government reopens, especially for any immediate deadlines, says Kathryn Bjornstad Amin, another principal in Groom and a former IRS attorney who advises plan sponsors on health and welfare benefit planning.

“They’re pretty short-staffed already, and now if there’s all or almost all not working there, I think things are going to get slowed down,” she says.