Core Summary

  • The Internal Revenue Service (IRS) suspended most operations on Wednesday, keeping only its most essential employees and placing the rest on mandatory furlough after exhausting unused funds. The agency had relied on this money to operate for an additional week after the federal government shutdown began.
  • According to a global memo issued by acting Chief Human Capital Officer David Traynor, non-exempt employees were given four hours to transition their work, including updating automatic email replies and voicemail messages. He did not specify which positions would be exempt from the furlough.
  • The IRS operated for an additional week longer than other federal agencies, relying on funds from the 2022 Inflation Reduction Act designated for technology upgrades and workforce rebuilding. In a general letter to employee creditors, Traynor stated that employees would receive their pre-shutdown pay by October 16, but "cannot predict when pay will resume."

In-Depth Analysis

One week into the federal government shutdown, the IRS gradually ceased all operations except for its most critical functions. This came after the Treasury Inspector General for Tax Administration (TIGTA) warned that significant cuts to the agency's workforce this year could impair its ability to process refunds for the upcoming tax filing season.

The Trump administration's measures to reduce the federal workforce have reduced staffing in the IRS division responsible for tax return management by up to 19%, according to a TIGTA report.

The division responsible for processing tax return submissions cut 1,930 employees, even though the agency needs to carry over unprocessed forms from last year into the 2026 filing season. TIGTA noted: "This could lead to delays in taxpayer refunds, which in turn would require the IRS to pay interest."

The division responsible for fraud detection saw its staffing reduced by 18%, which could prevent the IRS from stopping fraudulent refunds totaling $360 million, TIGTA stated.

Additionally, to meet White House workforce requirements, the IRS reduced staffing in the division handling taxpayer phone and mail correspondence, tax account adjustments, and tax return corrections during the first half of this year, cutting a total of 4,147 positions, or 17% of that division's workforce.

However, TIGTA noted that the IRS began hiring approximately 3,500 new employees in August to bring taxpayer phone service levels up to an acceptable range.

The staffing cuts have slowed work progress. TIGTA estimates that the number of tax returns requiring adjustment in the new fiscal year could increase to approximately 6 million, which is 2 million more than during the pandemic period.

TIGTA warned: "If the IRS is unable to scan and electronically process all paper-submitted Forms 940, 941, and 1040 as expected, it will need to hire additional staff to handle paper returns for the 2026 filing season." However, "most IRS divisions remain under an indefinite hiring freeze, and the window of opportunity to recruit and train the necessary personnel for the 2026 filing season is rapidly closing."