Treasury Department releases shutdown contingency plan for IRS, with 60,000 furloughs expected

The Treasury Department released a contingency plan in the event of a government shutdown, which appears increasingly likely to occur over the weekend, including plans for the Internal Revenue Service.

Most core tax administration functions will stop, according to a Treasury Department spokesperson. “This will result in furloughs for approximately two-thirds of IRS employees — about 60,000 of 90,000 staff— with significant harmful impacts on taxpayers,” said the spokesperson. “Taxpayer phone calls to the IRS will go unanswered. Outside of filing season, for the month of October, the IRS answers approximately 46,000 phone calls per day.”

In addition, 363 Taxpayer Assistance Centers across the country would close in the event of a shutdown. During the month of October, TACs typically provide face-to-face service to approximately 5,000 taxpayers per day. 

On top of that, tax refunds won’t be processed unless returns are electronically filed and error-free refunds can be automatically direct-deposited. The Treasury pointed out that 10.5 million individual 1040 filers are now on extension through the Oct. 16 deadline.  

While the IRS is able to receive mail, it won’t be responding to paper correspondence. “Taxpayers who mail in correspondence to the IRS during this period should expect a longer delay for a response after the IRS reopens due to a growing correspondence backlog,” said the Treasury. 

IRS activities that were funded with Inflation Reduction Act resources in fiscal year 2023. or are excepted under longstanding government-wide lapse in appropriations exceptions, will continue, however. The IRS also intends to continue preparations for the upcoming filing season, including updating tax forms and IT systems. Hiring and training to prepare for the filing season will also continue, and the IRS will continue with limited modernization initiative efforts funded specifically by the Inflation Reduction Act. 

The Inflation Reduction Act provided mandatory funding to implement the 2022 law, and the Treasury said its work on the second phase of implementation of the clean energy provisions will continue, but timelines detailed earlier in September could be affected by the shutdown.

The IRS will also keep processing requests for transcripts following disasters. In addition, it will provide income verification to mortgage lenders, banks, and others who request this information through the IVES (Income Verification Express Service) program. 

In addition, the Treasury said that critical IT system functions that are necessary to protect taxpayer data will continue.  

However, Community Development Financial Institutions (CFDI) Fund program activities scheduled for October will be delayed, and that is expected to reduce economic opportunity in economically distressed communities, including in rural and urban areas. More than $300 million in awards to CDFIs and nonprofit organizations from the Capital Magnet Fund will be put on hold, according to the Treasury. The funds are expected to leverage more than $11 billion in additional private and public investment, with 77% of investment coming from private institutions. CDFI programs scheduled to begin in October will be stalled, delaying applications for several programs:

• At least $9 million in funding being made available from the Small Dollar Loan program, which helps people in low-income communities avoid predatory lenders;
• $5 billion for the New Markets Tax Credit Program, which provides incentives for investment in economic development projects in low-income communities;
• More than $200 million in funding for the CDFI Program to provide financial products and services in distressed and underserved communities across the country;
• At least $25 million for the Native American CDFI Assistance Program, which provides financial assistance to CDFIs serving Native Communities; and
• The new CDFI Certification Application will not be made available to new groups waiting to apply for Certification, which will delay nonprofit loan funds, community banks and credit unions from accessing the Treasury’s programs that support investment in underserved communities.