In the event of a government shutdown on Oct. 1, normal IRS operations would continue for five business days, according to a fiscal year 2026 lapsed appropriations contingency plan posted by the Treasury Department on Monday.
If lawmakers can’t agree to a last-minute deal to keep the federal government open beyond Tuesday evening, the plan says the IRS would tap into funding the agency received from the Inflation Reduction Act of 2022 to keep its entire workforce working during that five-day period.
“With this funding the IRS will not experience a lapse in appropriations on Oct. 1, 2025, and normal IRS operations will continue,” the plan states.
Recommended Articles
Risk Management November 19, 2025
Protecting Your Practice from Uninsurable, Uncovered Costs
Taxes November 11, 2025
Shutdown Deal Leaves Popular Obamacare Tax Credits on Shaky Ground
The IRS lapse in appropriations contingency plan describes actions and activities for the first five business days following an event like a government shutdown. The plan is updated annually in accordance with guidance from the Office of Management and Budget and the Treasury Department.
“While we do not anticipate using the plan, prudent management requires that agencies prepare for this contingency,” the IRS plan states.
The contingency plan doesn’t provide any details about what the IRS would do if a government shutdown extends past five business days.
President Joe Biden’s signature 2022 tax-and-climate law allotted nearly $80 billion to the IRS over a 10-year period to improve taxpayer services, update antiquated computer systems, and increase compliance and enforcement actions. But that amount has been reduced to $37.6 billion as of March 2025 after a series of rescissions, according to an August report from the Treasury Inspector General for Tax Administration. As of last March, the agency has spent approximately $13.8 billion of its $37.6 billion in supplemental Inflation Reduction Act funding.
According to a summary overview of the IRS contingency plan, it would take up to half a workday to complete shutdown activities.
The contingency plan also shows that the number of IRS employees expected to be on board before the plan is implemented is 74,299, a total that has been adjusted for the deferred resignation program. The agency started 2025 with more than 100,000 employees, thanks to a big hiring push after the Inflation Reduction Act was signed into law. However, since President Donald Trump took office in January, the IRS has lost about 25% of its workforce due to early retirements and employees taking other incentives, like the DRP, to leave the agency.
- Related article: IRS Workforce Has Shrunk 25% Since Trump Took Office
The 74,299 employees are designated as “exempt” and would be retained in the case of a lapse shutdown, the plan states.
During a shutdown, federal employees generally fall into three categories: those whose salaries are financed through means other than annual appropriations and so continue to work and be paid, those who are furloughed, and those who continue to work without pay, also known as “excepted” employees. Neither furloughed nor excepted employees receive pay for the duration of a shutdown, although a law passed in 2019 guarantees these employees receive back pay once a shutdown ends.
In the IRS contingency plan, there are no employees considered “excepted.” The nearly 75,000 employees are considered “pay status” workers, while 407 employees are shown as “non-pay status.”
“As time went on, it was a very different scenario”
The FY 2026 lapsed appropriations contingency plan is developed for implementation during a lapse in annual appropriations to comply with the requirements of the Anti-Deficiency Act, which prohibits federal agencies from obligating or expending federal funds in advance or in excess of an appropriation, and from accepting voluntary services.
“There’s this legal framework around government spending, and the Anti-Deficiency Act basically says you can’t spend that which you don’t have. So, if you don’t have appropriated funds of some manner, the agencies can’t operate,” said Doug O’Donnell, a senior managing director within KPMG’s Washington National Tax practice who worked at the IRS for 38 years before leaving the agency earlier this year.
- Related article: KPMG Hires Ex-IRS Acting Commissioner Douglas O’Donnell
O’Donnell spoke about his past experience at the IRS navigating a government shutdown, specifically the one that lasted for 35 days from December 2018 until January 2019, during a LinkedIn Live event on Sept. 25, before this most recent IRS contingency plan was posted.
During that shutdown, the IRS announced it would recall enough furloughed workers to have 46,000 employees on hand—less than 60% of its usual levels—to process tax filings.
But when the IRS briefed Congress behind closed doors on Jan. 24, 2019, it told staffers that 14,000 of the 26,000 workers recalled to work without pay at IRS processing and call centers across the country didn’t show. About 9,000 of the workers weren’t reachable while 5,000 had claimed financial hardship, according to ABC News.
“In my experience at the agency, … we made sure that there were new people that were coming into the planning process for the contingency plan so that we were thinking about what has changed in the agency,” said O’Donnell, who held the agency’s most senior roles, including acting commissioner (twice), deputy commissioner, and commissioner of the Large Business and International Division, during his tenure at the IRS. “It is important to have new perspectives, new people involved in the discussion. The people who are very senior may not fully appreciate what’s happening at some operational level. And so there’s an ongoing effort to maintain the plan, to make sure that we’re keeping up with what is changing and what that actually looks like. That is an ongoing exercise.”
The seven-week-long shutdown in late 2018-early 2019 led up to right before the 2019 tax filing season, so it was a different situation than what could happen this time around.
“There were impacts that at the outset, they were minimal, not even really considered. But as time went on, it was a very different scenario,” O’Donnell said. “The leadership began to realize this was not resolved. Some of these issues that we wouldn’t normally worry about we needed to start talking about, and we needed to be thinking about whether our plan for only having 30% of the workforce or 40% of the workforce in, does that work? And then that turns into a communication with the Treasury Department, who will be working with the Office of Management and Budget to understand whether there’s any flexibility, because that which we thought was essential for a day is one thing, but when you get out a week or two weeks, it becomes a very different matter. And that’s something that leadership, experienced leadership will know about and will be prepared for. If something were to happen, the pivot to this is not an hour or a day, it’s something more than that, they do have experience with that and how to make the case for allowing for additional folks to be involved in some of the work. It doesn’t turn everything back on, but some of the things that you need to make sure you do that are essential to the operation of the IRS, they will be turned back on.”
If the government does indeed shut down, O’Donnell shared the following advice to taxpayers: “Make sure you’re doing the things you would normally do to file, to make the payments, keep your records, and pay attention to how things are evolving. For us, we’ll be communicating within [KPMG] and then sharing that information with clients. But it’s going to be really important for all of us to just keep track of what’s happening.”
Thanks for reading CPA Practice Advisor!
Subscribe Already registered? Log In
Need more information? Read the FAQs
