The Treasury Department posted an updated fiscal year 2026 lapse-in-appropriations plan on September 29, 2025, two days before federal funding was due to expire. The plan says the IRS will keep its entire 74,300-person workforce on the job for the first five business days of any shutdown, using leftover Inflation Reduction Act funding rather than annual appropriations, but it stops short of saying what happens if the standoff drags on longer than a week.
What changed
In past shutdowns, the IRS has furloughed a large share of its staff almost immediately, keeping only employees deemed essential for safety of life and property. This plan is different because it draws on the roughly $80 billion in multiyear enforcement and operations funding Congress provided under the 2022 Inflation Reduction Act, some of which remains unspent. Treasury's contingency plan filing says that funding can legally cover payroll and operations for the first five business days after appropriations lapse, so the agency does not have to send anyone home right away the way it has in prior funding gaps.
Who is affected
The plan matters most to taxpayers with pending IRS business during the shutdown window: filers with an October 15 extended deadline, taxpayers expecting a response to correspondence or an amended return, and anyone under active examination. Because the first five business days keep the agency fully open, routine processing, phone lines and the October 15 extension deadline itself are expected to proceed normally at the outset. High earners with complex returns, multiple K-1s or cross-border filings, who are more likely to have extensions and open correspondence with the IRS, have the most at stake in whether service continues smoothly or abruptly stops once the initial funding window runs out.
The after-tax math
A shutdown does not change what anyone owes, but it can change the cost of getting something wrong. Example: a taxpayer who filed for an extension owes an estimated $60,000 balance due on October 15. Interest and the failure-to-pay penalty, typically 0.5% of the unpaid balance per month, continue to accrue regardless of whether the agency is fully staffed, so a taxpayer who assumes a shutdown pushes back the deadline could face roughly $300 a month in penalties and interest for no reason. Conversely, a taxpayer waiting on an IRS notice response or a refund tied to an amended return may see processing slow to a crawl if the lapse extends past the initial five-day window, since the plan does not specify staffing levels beyond that point.
| Period | IRS staffing under the plan | What continues |
|---|---|---|
| Days 1-5 of a lapse | Full 74,300-person workforce, IRA-funded | Filing deadlines, phone lines, routine processing |
| Beyond day 5 | Not specified in this plan | Unclear; historically limited to safety-of-life functions |
What to watch
The unresolved question is what the IRS does if a shutdown lasts longer than the initial five business days the plan explicitly funds. Prior contingency plans have called for sharply reduced staffing once emergency funding runs out, and taxpayers with open audits, appeals or correspondence should expect the possibility of delays if a lapse stretches into a second week or beyond. Anyone with an October 15 extension, or expecting a time-sensitive IRS response this fall, may want to file and pay early rather than wait until the deadline, since even a well-funded first week does not guarantee normal service if the shutdown continues.
Why this shutdown looks different from past ones
Government shutdowns are not new, but the funding source behind this plan is. In 2018 and 2019, when the last extended lapse occurred, the IRS had no comparable pool of multiyear money to draw on and furloughed the bulk of its workforce almost immediately, keeping only a small fraction of employees for functions tied directly to protecting property and criminal investigations already underway. The Inflation Reduction Act's roughly $79 billion in supplemental funding, enacted in 2022 and since reduced by congressional rescissions to a smaller remaining balance, gives the agency a one-time cushion that earlier shutdowns did not have. That cushion is finite and has already been trimmed by billions of dollars in separate legislation, which is part of why Treasury's plan funds only an initial five-day window rather than open-ended full staffing for the duration of any lapse.
Sources
- First reported Lapse in Appropriations Contingency Plan — U.S. Department of the Treasury
- IRS shutdown plan keeps employees working days after funding lapse — Federal News Network
- Treasury Department Lays Out IRS Contingency Plan as Shutdown Nears — CPA Practice Advisor
- IRS Enforcement Boost Was Supposed to Last 10 Years. Congress Killed It in Under Three. — Institute on Taxation and Economic Policy
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
