Federal government shutdown continues; IRS furloughs expected

The federal government shutdown continues after federal funding lapsed at the start of fiscal year 2026 on Oct. 1, 2025. Tensions remain high on Capitol Hill, as federal agencies including the IRS look to begin furloughs amidst ongoing disagreement among Republican and Democratic leadership on a stopgap funding bill needed to turn the lights on.

IRS

Notably, the IRS is reportedly preparing to furlough nearly half of its approximately 74,000 employees as a result of the shutdown lasting beyond its five-day FY 2026 Lapsed Appropriations Contingency Plan released last week. Under its initial plan, the IRS stated it would be able to continue normal operations because of supplemental funding provided under the Inflation Reduction Act (P.L. 117-169). However, the contingency plan only details “actions and activities” for five business days after the lapse of appropriations on Oct. 1, 2025.

The American Institute of CPAs (AICPA) is calling on the IRS to retain all employees through the government shutdown, citing concerns for tax practitioners and taxpayers alike as the Oct. 15, 2025, deadline approaches. “The consequences of such a drastically reduced workforce during a tax filing deadline and immediately preceding the start of next year’s tax filing season would be dire,” the AICPA said in an Oct. 3, 2025, press release.

Further, a reduction in IRS workforce could delay much needed regulatory guidance after enactment of the sweeping tax reform and spending legislation known as the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). “Even a partial shutdown of the IRS for an extended period is deeply concerning, and we urge the IRS to retain its full staff until the shutdown is over,” stated Melanie Lauridsen, vice president of tax policy & advocacy with AICPA.

Additionally, Treasury Secretary and Acting IRS Commissioner Scott Bessent announced on Oct. 6, 2025, that Commissioner of the Social Security Administration Frank Bisignano will serve as chief executive officer of the IRS. In this newly created position, Bisignano will report directly to Bessent, managing the agency and overseeing all day-to-day IRS operations while also continuing to serve in his role as commissioner of the Social Security Administration.

U.S. Tax Court

Meanwhile, the U.S. Tax Court on Oct. 6, 2025, announced if the government shutdown continues through Oct. 14, 2025, at 5:00 p.m. EST, the Court will cancel trial sessions for the weeks of Oct. 20, 2025, and Oct. 27, 2025. The Clerk’s Office remains open for eFiling and paper filing.

Appropriations

Looking ahead, it remains unclear as to when congressional leadership will reach an agreement on federal appropriations. As noted in our September 2025 Policy Pulse, the House cleared a Republican-led, “clean” continuing resolution (CR) by a 217-212 vote on Sept. 19, 2025, to maintain government funding at current levels through Nov. 20, 2025. The measure has since repeatedly failed in the Senate, however, where bipartisan support is required to reach the 60-vote threshold under regular order. A Democratic proposal has also failed.

Democratic lawmakers are demanding, among other healthcare-related priorities, that the CR include the extension of the enhanced premium tax credit for Affordable Care Act (ACA) premiums, which expires at year’s-end. But Republicans say those demands are too high for a seven-week stopgap measure. House Speaker Mike Johnson (R-LA) has said he is committed to working with Democratic lawmakers on the 12 annual appropriations bills once the impasse lifts.

“The Senate will continue to vote on the House-approved CR until it passes,” a Senate Republican senior aide told Baker Tilly. To that end, Johnson has said the House will not return to Capitol Hill until the Senate “turns the lights back on.”

Baker Tilly’s National Tax professionals will continue to monitor the situation, providing timely updates and strategic insight as your source in Washington. If you have questions on how this may impact your tax situation, please contact your Baker Tilly tax advisor. 

Update: On Oct. 8, 2025, the IRS released its updated Fiscal Year 2026 Lapsed Appropriations Contingency Plan, confirming nearly half of its workforce will be furloughed during the federal government shutdown. IRS employees critical to the OBBBA’s implementation, the 2026 tax filing season, and IT-related services will remain active.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.