The Internal Revenue Service has furloughed nearly half its workforce and shut down most day-to-day operations as the government shutdown drags into its second week — a move that threatens to delay tax refunds, stall compliance actions, and complicate the rollout of sweeping new tax changes approved by Congress earlier this year.
The agency confirmed Wednesday that roughly 34,000 of its 74,000 employees are now on furlough after contingency funding expired. While about 53% of staff remain on the job — many focused on core taxpayer services and IT security — the IRS warned that “most operations are closed due to the lapse in appropriations.”
For financial professionals who depend on timely data from the IRS, the sudden freeze presents both practical and market challenges. Tax transcripts, rulings, and procedural guidance will largely be unavailable until operations resume. Financial advisors say the interruption could disrupt year-end tax planning and delay filings for clients with pending refunds or extension deadlines.
“Every day these employees are locked out of work is another day of frustration for taxpayers and a growing backlog of work that sits and waits for the shutdown to end,” said Doreen Greenwald, president of the National Treasury Employees Union. “For frontline employees, the complete lack of planning left them in the dark about their work status until their supervisor informed them today.”
According to the Treasury Department’s updated contingency plan, about 39,870 employees — classified as “excepted” or “exempt” — remain working to preserve core functions. These include safeguarding IT systems, processing limited remittances, managing payroll for government staff still on duty, and continuing enforcement activities necessary “to protect life and property.”
But the agency’s call centers, non-automated collections, and most administrative work have been suspended. Acting Chief Human Capital Officer David Traynor notified employees that unless specifically exempted, “you are being furloughed beginning October 8, 2025.”
The pause arrives as the IRS prepares for next year’s filing season and begins implementing President Donald Trump’s “Big Beautiful Bill,” which introduces substantial revisions to the tax code — including new provisions on tips, overtime pay, and Social Security exemptions.
Despite those efforts, the agency will continue implementing the administration’s tax cuts. IRS officials said work related to the no-tax-on-tips initiative and other structural reforms would proceed, even as thousands of employees are sidelined.
The furlough order follows a contentious debate over whether federal employees are guaranteed back pay once the shutdown ends. The Office of Management and Budget circulated a memo suggesting that furloughed staff might not be automatically entitled to back pay under current law, contradicting a 2019 statute enacted after the last major shutdown.
That interpretation met immediate resistance from both parties on Capitol Hill. House Speaker Mike Johnson (R-La.) said, “It’s my understanding that the law is that they would be paid… I think they should be. They should not be subjected to harm and financial dire straits.”
The IRS informed employees that while they are in “non-pay and non-duty status,” they will be compensated “on the earliest date possible after the lapse ends, regardless of scheduled pay dates,” citing the Government Employee Fair Treatment Act of 2019.
For advisors, the effects of a partially shuttered IRS are immediate and tangible. Delays in return processing, correspondence, and audit resolution could extend into next year, with the risk of snowballing backlogs once normal operations resume.
Refunds for clients who filed extensions — due October 15 — could face prolonged delays, while businesses awaiting rulings or credit approvals are likely to see plans stall. Advisors also warn that without timely IRS data, client forecasting and end-of-year tax-loss strategies could become guesswork.
Past shutdowns offer a sobering precedent: when the government closed for 35 days in 2019, it took months for the IRS to recover. Although Commissioner Chuck Rettig, who oversaw that period, later described the filing season as “highly successful,” it came only after extensive overtime and system strain.
Initially, the IRS relied on Inflation Reduction Act funds to stay open during the first week of the shutdown, drawing from reserves intended for IT modernization and workforce rebuilding. But those resources proved insufficient beyond October 7, prompting the agency to revert to its statutory shutdown plan.
A Treasury spokesperson said that only activities funded by the Inflation Reduction Act or deemed essential under governmentwide rules will continue. Everything else, including legal counsel, research, and most administrative planning, will remain suspended until Congress resolves the budget impasse.
Greenwald, the union president, warned that even a short shutdown could set the agency back months. “Expect increased wait times, backlogs and delays implementing tax law changes as the shutdown continues,” she said.
With the Senate deadlocked after six failed votes to reopen the government, there is little sign of a breakthrough. If the shutdown persists into late October, experts predict that refund delays and service disruptions could spill into the 2026 filing season — just as major components of the Trump tax plan are set to take effect.
For financial advisors and tax professionals, the message is clear: plan for extended uncertainty. As one former IRS official put it, “The longer the lights stay off, the harder it will be to turn them back on.”
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