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Potential Federal Government Shutdown: Impact on Businesses and IRS Operations

By Elizabeth Zimnawoda, CPA, Senior Accountant at Blue & Co.

The possibility of federal government shutdowns looms early this year, stemming from persistent funding challenges. Unmet funding resolution deadlines could result in half of the government being shut down on January 19, and the other half (including the IRS) on February 2. This potential significant shutdown would majorly impact this tax season.

Businesses involved in government spending may encounter cash flow issues during a shutdown. To mitigate this risk, these businesses may consider building cash reserves in anticipation of potential disruptions.

The IRS Shutdown Contingency Plan

First, they would furlough two-thirds of employees. As a result, fewer employees would be answering phone calls and Taxpayer Assistance Centers would be closed. However, the IRS plans to continue to send automated collection notices. In addition, the IRS would not respond to paper correspondence, and they would only process and direct deposit e-filed, error-free refunds. Thus, the backlogs experienced during the pandemic would return.

Please keep these potential impacts in mind as the funding resolution deadlines are fast approaching and tax season is beginning. The AICPA has requested some improvements to the IRS’s contingency plan, such as keeping 100 percent of the IRS open. Nevertheless, it is always good to be prepared. If you have any questions or concerns, please reach out to your local Blue & Co. advisor.

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