Former IRS Commissioner Charles Rettig provides updates on the government shutdown. What to do now that we are officially in Phase 2 of the FY2026 IRS Shutdown Contingency Plan? 

Phase 1 (dated 9/29/25) provided for normal IRS operations to continue uninterrupted, with all 74,299 employees on board, for the first five business days following a lapse in appropriations.

Phase 2 (dated 10/08/25) is different, potentially preparing for the long hall (applicable for the period 10/08/25-04/30/26) subject to modification along the way. Utilizing funds “other than annual appropriations” (i.e., less than $20 billion in the aggregate of residual IRA22 funds that have yet to be rescinded or repurposed by Congress), Phase 2 provides that 39,867 of 74,299 (53.6%) IRS employees will remain on board to support the implementation of FY26 Filing Season, continue modernization efforts and to ensure the timely implementation of OB3 legislation (P.L. 119-21.). IRS filing season employees are resilient and well known and respect the importance of processing returns and generating refunds and refundable credits to eligible individuals. Be confident in their ability and desire to achieve yet another successful filing season, even with the inherent uncertainties of a lapse in appropriations.

Advice to Tax Professionals: More than 95% of individual tax returns are processed automatically, with little human interaction. Tax professionals should continue normal operations during the shutdown, finish up and timely file required returns and forms, advise clients to pay timely amounts due, respond timely to any outstanding requests for information handling an examination or collection matter, and document any difficulties potentially impacting the ability to comply in a timely manner.

Excerpts from the Lapse Plan:

For the expected duration of the lapse extending through April 30, 2026, 39,870 employees are designated as “exempt” (53.6% of the total workforce) and would be retained. These continuing activities fall primarily under three categories:

1. Category A1: Activities authorized by law and supported by non-expiring funds, such as multi-year or no-year appropriations. Multi-year funding available to the IRS will be utilized for the activities outlined in this plan.
2. Category A3: Activities necessarily implied by law based on imposed duties or authorities.
3. Category B: Activities necessary to safeguard human life or protect Government property.

Tax Filing Season Readiness and Return Processing

The core objective of the retained operations is preparation for the Tax Year 2026 filing season. Activities crucial to the onset and execution of the filing season will continue:

• System Completion and Testing: The completion and testing of the upcoming Filing Year programs are designated as Category B activities and will continue.
• Forms and Publications: Activities related to Upcoming Tax Year forms design and printing will continue (Category B). Tax Forms and Publications (TFP) personnel will ensure the timely development, completion, and release of tax forms, instructions, and publications necessary for taxpayers to file and remit taxes for current and upcoming tax years.
• Return Processing (with Remittance): The IRS maintains the longstanding position that tax revenues constitute Government property which must be safeguarded. Therefore, activities related to Processing Remittances including Payment Perfection will continue (Category B). The Service may continue processing tax returns to ensure the protection of those returns that contain remittances, securing and protecting them against imminent loss.
• Mail Operations: Mail Processing (remittances, etc.) is a Category B activity that will continue. Within Small Business/Self-Employed (SBSE) Collection, personnel will open incoming mail to identify documents required to be processed to protect the government’s interest during shutdown. Taxpayer Services’ Submission Processing Field Directors will process tax returns with remittances.

Support for Tax Professionals (Return Preparer Office and Procurement)

• Return Preparer Office (RPO): The RPO retains staff (8 positions) to provide contract support to exempt third-party contractor systems administered and monitored by RPO, noting that these contractors provide services to over 800,000 Tax Professionals.
• Procurement and Contracts: Procurement staff (114 positions) are retained, primarily under Category A1 (reimbursable agreements) or A3 (implied authority), to provide support for the administration of continuing contracts and to award emergency contracts that may arise. They also support contract work for the Treasury Departmental Offices and the Bureau of Engraving and Printing. Tax professionals with contracts with the IRS should note that prime vendors will be notified via email to visit IRS.gov to check their contract status, and questions should be directed to the Procurement Lapse email account, Proc.Lapse@IRS.gov.

The complete IRS Lapse Plan is available here, we at US Tax Consultants, will do our best to keep clients informed, but there is little else we can do, we know this situation if afecting, both the refunds and the return processing, of all clients.