Much has been written about the IRS having to furlough nearly half of its workforce during the federal government shutdown that started on Oct. 1. Taxpayers and their advisers are now feeling the effects of the shutdown as IRS services dwindle and the backlog mounts.

The Problem with Automated Collection Notices

One major issue emerging as the shutdown continues involves the IRS' incongruent collections activities. On Sept. 29, the IRS' "Lapsed Appropriations Contingency Plan," announced that nonautomated collections activities would be suspended during the shutdown.[1]

However, automated collections activities have continued. This means that taxpayers who owe the IRS have continued to receive such notices.

In an Oct. 9 letter, the Association of International Certified Professional Accountants urged acting IRS Commissioner Scott Bessent to cease automatic collections activities.

While some collections employees are working during the shutdown, the AICPA highlighted that there will be limited IRS resources available to process taxpayer responses or assist taxpayers with resolution of their issues.

During past shutdowns and the COVID-19 pandemic, the IRS continued sending automated collection notices. While a short shutdown may not have much of an impact on the IRS collections function, a long shutdown may cause major issues for taxpayers.

For example, when a taxpayer receives an automated collection notice that provides for a collections due process hearing, they have only 30 days to file a request for a CDP hearing.

Generally, when at taxpayer files a CDP request, collections activities stop.

When a taxpayer files a CDP request during a shutdown, there may not be anyone to actually process the request. Employees who would ordinarily take the next step of filing a lien or levy may be furloughed.

So, what happens to the backlog of unprocessed CDP requests when the IRS reopens?

With a log jam of CDP requests, it is certainly possible — if not probable — that the CDP requests will not be timely processed. And if a CDP request is not processed, the IRS may continue collections activities, such as filing a lien or levy, not knowing the taxpayer timely filed a CDP request.

This is just one example of the potential problems this shutdown could cause.

Tax practitioners are well aware that different IRS functions sometimes do not communicate well with one another. Adding the complexity of a government shutdown in which parts of the IRS are functioning, and other parts are not, is a recipe for disaster.

An Easy Fix and A Hard Fix for Collections

With no end to the shutdown in sight, the backlog of mail and filings coming into the IRS will continue to mount on a daily basis. A logical, easy solution, as described by the AICPA, is to cease all collections activities until the IRS is working at full capacity to ensure congruent results.

In fact, the IRS took this approach when it was dealing with a paper processing backlog after the COVID-19 emergency.[2] The IRS slowly ramped operations back up, but froze automated collection notices for a period while it processed incoming mail. Since the IRS has shown it can pause automated collection notices, it should be able to do this again.

But this solution by itself is not a magic fix. Interest and penalties would continue to accrue on amounts owed. Taxpayers who genuinely do not know that they owe tax but would have to pay a liability upon receipt of notice would be disadvantaged by delayed automatic notices.

The only way to protect those taxpayers, along with the taxpayers described above who want to contest their liabilities, is for Congress to suspend the running of interest, and for the IRS to stop the accrual of penalties. This is a far more complicated solution and would be a bitter pill for the IRS to swallow.

For taxpayers, it is an equitable solution that would prevent harm from the shutdown.

Interest on underpayments is statutory.[3] However in certain circumstances, the IRS has to abate or suspend interest. And certain tax deposits will stop the accrual of interest.[4]

But these are statutory exceptions, and the IRS cannot unilaterally defy Internal Revenue Code, Section 6601, which provides for interest on underpayment and nonpayment of tax and for extensions of time to pay. Only Congress would be able to suspend the running of interest.

Even in the unlikely event that Congress granted such authority to the IRS, an across-the-board suspension of interest would likely be far more difficult for the IRS to administer than special circumstances for taxpayers who are under audit.

However, the IRS does have the authority to abate penalties or suspend the accrual of failure to file or failure to pay penalties. In fact, during the pandemic, the IRS waived failure to file penalties for 2019 and 2020, and waived failure to pay penalties for 2020 and 2021.[5]

The IRS should do this again, this time coupled with a contemporaneous suspension of automated collection notices. While interest would continue to accrue without an act of Congress, at least the accrual of penalties would stop.

In fairness to the IRS, it is likely that a temporary suspension of penalties is going to be very difficult to administer. But difficulty should not trump equity.

The Related Problem of Refund Processing

While the shutdown is going to affect those who owe money to the IRS, it will also cause problems for taxpayers with refunds that are in IRS purgatory. Even when the IRS is operating as normal, it is sometimes difficult to get standard refunds processed.

Normally, the solution is to (1) contact the IRS directly through its various hotlines, or (2) file a request for assistance with the national taxpayer advocate. The former option can be difficult and time-consuming during normal operations.

Tracking down refunds while the IRS is working at half capacity will be even more frustrating and challenging. And working with the taxpayer advocate, usually an effective, albeit slow method, is not an option during the shutdown. This means that taxpayers who are waiting for refunds have to continue waiting.

Unfortunately, there is no easy fix for delayed refunds. With the IRS operating at reduced capacity, this problem will only get worse. However, taxpayers do have one aggressive, yet effective option: File a refund suit.

A taxpayer who timely and properly files a claim for refund, can file a refund suit in a U.S. district court or the U.S. Court of Federal Claims.[6] The suit can be filed six months after the refund claim is filed, but no later than 2 years after any denial.[7]

If the IRS does not process a valid claim for refund within six months, a taxpayer can file suit in federal court. Although the government shutdown may be affecting the courts and the U.S. Department of Justice attorneys who would be involved in the suit, this may not be a bad option for taxpayers who cannot gain any traction with the IRS.

What's Next

We don't know what, if any, relief the IRS will offer taxpayers. Regardless, we know that when the government reopens, the IRS will be facing a backlog of mail, filings, refunds and claims to process.

After the pandemic, the IRS was bogged down with unprocessed correspondence. The limitations from the COVID-19 era lasted years, and it feels as if the IRS never truly recovered.

In fairness to the IRS, the agency has also been hampered by reduced funding and unprecedented leadership turmoil. With these issues continuing, taxpayers should expect a very slow recovery whenever the government reopens. The slow recovery will undoubtedly affect taxpayers.

What Taxpayers Should Do to Protect Themselves During the Shutdown

Taxpayers and their advisers should not assume that payment or filing deadlines are suspended during the shutdown. Since the IRS is still sending automated notices, and interest and penalties continue to accrue, taxpayers need to continue meeting all collection and refund deadlines as if there were no shutdown.

And taxpayers and their advisers need to be extra diligent when dealing with the IRS by keeping detailed records. Taxpayers should keep call logs, and detailed notes and timelines. Physical submissions to the IRS should be sent in a secure manner, and taxpayers should keep records of all mailings, including tracking and delivery confirmations. Taxpayers should also maintain sent copies of all filings.

No one knows how long the shutdown will last. At this point, it seems that it could drag on for quite some time. What we do know is that when it ends, turmoil is likely between the IRS and taxpayers over what the next steps in matters should be. In the meantime, taxpayers should exercise extra care and diligence, and continue to meet any deadlines and filing obligations.

Reprinted with permission from Law360 ©2025 Portfolio Media. Further duplication without permission is prohibited. All rights reserved.

[1] IRS, Fiscal Year 2026 Lapsed Appropriations Contingency Plan, available at https://home.treasury.gov/system/files/266/Treasury_IRS_Lapse_Plan.pdf.

[2] https://www.taxpayeradvocate.irs.gov/news/nta-blog/you-received-a-collection-notice-now-what/2024/09/#:~:text=The%20IRS%20resumed%20sending%20automated,receive%20an%20IRS%20collection%20notice.

[3] IRC § 6601.

[4] IRC § 6603.

[5] IRS Notice 2022-36, Penalty Relief for Certain Taxpayers Filing Returns for Taxable Years 2019 and 2020, https://www.irs.gov/irb/2022-36_IRB#NOT-2022-36; IRS Notice 2024-7, Relief from Additions to Tax for Certain Taxpayers' Failure to Timely Pay Income Tax for Taxable Years 2020 and 2021, available at https://www.irs.gov/pub/irs-drop/n-24-07.pdf.

[6] IRC § 7422(a).

[7] IRC § 6532(a).

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