IRS Disrupted as 34,000 Employees Furloughed in Shutdown

The federal government shutdown has entered its second week, and one of its most significant effects has reached the Internal Revenue Service (IRS). Earlier this week, the IRS confirmed that nearly 34,000 employees, about 46 percent of its workforce, are being furloughed until further notice.

For taxpayers, CPAs, and business owners, this development means delays, disruption, and uncertainty at one of the busiest times of the year. With the October 15 filing deadline approaching, understanding how the furlough affects tax operations is essential.

What Happened

According to reports from Reuters and AP News, the IRS began implementing its contingency plan when funding lapsed on October 1. Under that plan, all non-essential personnel are placed on unpaid leave. Only employees whose work protects life or property, or supports ongoing litigation, will remain on duty.

The furlough affects many critical IRS divisions, including taxpayer assistance, audits, collections, and administrative processing. The agency also confirmed the following:

• Refunds and correspondence will face significant delays.

• New audits and most enforcement activities are temporarily suspended.

• Electronic filing remains available, but manual processing will slow considerably.

• Back pay for furloughed workers is expected under current law, although a recent White House memo questioned that interpretation.

In short, the IRS will continue to perform limited automated functions, but most in-person and administrative operations have stopped.

Why It Matters for Tax Professionals

For tax practitioners, this shutdown creates several challenges that will directly affect client service and compliance:

1. Slower IRS communication and service

Call centers and the Practitioner Priority Service will have long wait times, if they are open at all. Many IRS offices are working with minimal staff, so expect delays in transcripts, case updates, and correspondence.

2. Expanding backlog risk

The IRS has spent the past two years reducing its pandemic-related backlog. The furlough threatens to reverse that progress, especially for amended and paper-filed returns.

3. Enforcement slowdown but continued accruals

Although audits and collections are paused, penalties and interest on unpaid balances will continue to accrue. Clients should not assume a grace period applies.

4. Increased compliance confusion for businesses

Business owners awaiting Employee Retention Credit (ERC) resolutions or refund claims will likely face longer delays. Tax professionals should document all communications and set realistic expectations for clients.

What’s Next

If the shutdown continues past mid-October, the following issues are likely:

• Filing season readiness may be affected, potentially delaying the start of the 2026 filing season.

• Potential deadline relief could be introduced if disruptions grow more severe.

• Post-shutdown enforcement activity may increase once operations resume, as the IRS works to catch up on audits and collections.

Tax professionals should continue to:

• Encourage clients to e-file and make payments on time.

• Monitor IRS and Treasury updates daily.

• Prepare for processing delays that could extend well into next year.

Conclusion

The IRS furlough shows how quickly political gridlock can affect tax administration and compliance. For professionals, staying informed and communicating clearly with clients will be key to managing the coming weeks effectively.

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