Government Shutdown: IRS Operations Impact | GBQ

The extended government shutdown is affecting IRS services, with potential delays in processing refunds, particularly for businesses. To address issues related to the shutdown, the IRS  released a statement  on its limited operations during the lapse in appropriations. While some essential functions continue, the IRS says the growing backlog may take time to resolve once operations resume. Read on to learn more about what to expect. 

Key Reminder 

Taxpayers must continue to meet all IRS filing and payment deadlines during the government shutdown. Missing deadlines can result in penalties, regardless of processing delays.  

Current IRS Operations During The Shutdown 

The IRS has shared updates on its contingency plan. Here’s what taxpayers should know: 

• Refunds: Processing is limited to error-free, electronically filed Form 1040 returns eligible for automatic direct deposit. Business refunds, including those from returns filed by October 15, may face delays based on the shutdown’s duration and backlog size. 

• Payments: All payments and remittances, whether electronic or mailed, will be accepted and processed. 

• Phone Support: Limited live assistance is available; most automated phone lines remain operational. 

• Appointments: All scheduled meetings with IRS Appeals and the Taxpayer Advocate Service are canceled and will be rescheduled after the government reopens. 

The IRS is already operating with a reduced workforce, having lost about 25% of staff over the past year.  

The Treasury Inspector General for Tax Administration said in its  annual report released on October 27  that “providing quality service to taxpayers, and enforcing tax laws with a reduced workforce and budget will be challenging for the IRS.” 

OBBBA Guidance Update 

The government shutdown is also impacting the release of the One Big Beautiful Bill Act (OBBBA) guidance. Treasury Assistant Secretary for Tax Policy Kenneth Kies confirmed that some progress has been paused due to furloughed staff, but a plan is in place to prioritize catch-up work upon return. 

Priority areas for OBBBA guidance include: 

• Rules for material assistance and foreign entity of concern provisions in energy credits 

• Expensing for qualified production property under new Section 168(n) 

• Transitional reporting requirements for overtime and tip income 

• Removal of the one-month deferral election under Section 898 

• Exclusions from foreign-derived deduction-eligible income for certain property transfers after June 16, 2025 

• Transition rules for pro rata share of dividends from controlled foreign corporations on or before June 28, 2025 

• Application of the 10% foreign tax credit reduction to previously taxed income distributed after June 28, 2025 

Businesses depending on this OBBBA guidance should prepare for possible timing adjustments. 

Government Shutdown Status 

The current government shutdown is among the longest on record. Several upcoming deadlines are adding focus to funding discussions: 

• ACA open enrollment began on November 1 in most states. 

• Funding for military salaries is projected to run out by November 15, according to Treasury Secretary Scott Bessent. 

• SNAP benefits may require alternative funding in November. 

• Federal employee unions have called for a continuing resolution to restore operations. 

Lawmakers continue negotiations. The House has not returned to session, and Senate votes on funding measures reflect ongoing differences in approach. Discussions include potential short-term extensions through November 21 or longer-term options into 2026. 

Planning Ahead 

After the government shutdown ends, processing delays may mirror or exceed those from the 2018–19 shutdown. Individuals and businesses are encouraged to file early for any matters requiring IRS review once normal operations resume. 

For tailored support on the government shutdown, OBBBA guidance, or IRS filing and payment deadlines,  contact GBQ. We’re ready to assist with your questions and planning needs. 

Some content borrowed with permission from BDO USA. GBQ is an independent member of the BDO Alliance USA, a nationwide association of independently owned local and regional accounting, consulting, and service firms.