How the 2025 Government Shutdown Impacted the IRS—and What Taxpayers Should Expect Next
Federal shutdowns create uncertainty across government agencies, but for taxpayers, one thing never changes: the IRS continues enforcing tax obligations. Even during reduced operations, the agency must protect federal revenue—meaning filing deadlines, automated notices, interest, and penalties don’t stop.
For individuals and businesses already dealing with compliance issues, audits, or penalty notices, a shutdown can make matters even more complex. Working proactively with a tax attorney or IRS tax lawyer can be the difference between navigating this period smoothly and facing unnecessary consequences.
The 2025 shutdown highlighted exactly how these disruptions impact taxpayers and why planning ahead is critical.
IRS Operations During the Shutdown
During the lapse in appropriations, the IRS operated with only 39,870 employees—roughly half its normal workforce. According to the IRS lapse plan released before the shutdown (EisnerAmper), only essential personnel remained to maintain legally required operations. Despite the limited staffing, taxpayer obligations did not change:
Filing deadlines remained in effect.
Payments were still due.
Automated systems continued issuing notices, posting payments, and accruing penalties and interest.
Taxpayers needing substantive help—especially those already in IRS tax collection enforcement—found themselves without support. Phone lines, correspondence responses, audits, and appeals were largely paused.
Now that the government has reopened, demand on IRS operations is expected to spike, creating delays that will likely stretch into 2026.
Economic Impact of the Shutdown
The shutdown was estimated to cost the U.S. economy up to $14 billion, according to multiple sources including Reuters, BDO, and other financial experts.
Operational slowdowns affected nearly every area of IRS workflow, from return processing to dispute resolution—an especially important issue for anyone working with a tax dispute lawyer to resolve active IRS matters.
Penalty Relief: A Notable Result of the Shutdown
Because taxpayers could not easily communicate with the IRS, the agency has signaled expanded relief in certain situations:
Automatic First-Time Abatement (FTA) is expected in cases that previously required a formal request.
Additional shutdown-related penalty relief is likely for taxpayers who experienced compliance challenges during the reduced-operations period.
Shutdown conditions do not erase tax obligations, but they do create reasonable cause arguments that a tax attorney Washington DC–based practitioner can help document and present effectively.
What to Expect in a Future Shutdown (Possible After January 30, 2026)
Current funding keeps the IRS open until January 30, 2026, but if another shutdown occurs, taxpayers should expect:
Furloughs and limited IRS services
Filing and payment deadlines to continue as normal
Refund delays and slower processing
Paused audits and appeals, affecting both individuals and businesses
For anyone already navigating disputes, audits, or collection actions, having an experienced IRS tax lawyer in place before a shutdown can prevent unnecessary delays and protect taxpayer rights.
Conclusion: Be Proactive—A Shutdown Doesn’t Put Your Tax Obligations on Hold
Shutdowns disrupt the IRS, but not taxpayers’ responsibilities. Automated systems keep working, penalties keep accruing, and deadlines remain fixed—even when support is limited and communication channels freeze.
Whether you’re responding to IRS notices, seeking penalty relief, preparing for an audit, or addressing concerns around IRS tax collection enforcement, proactive guidance is essential.
Kundra & Associates helps taxpayers stay protected, compliant, and prepared—during shutdowns and beyond. If you need clarity, strategy, or representation, reach out to Chaya Kundra, an IRS tax lawyer and tax attorney Washington DC, for guidance grounded in decades of experience navigating federal tax controversies.