Taking the Taxman to Court Is Complicated by Government Shutdown

The US government has been shut down since Oct. 1, and the excess funding the IRS had to stay open ran out at midnight Oct. 7. Unlike in prior shutdowns, furloughed federal workers might not receive back pay.

The timing and circumstances couldn’t be worse from a filing perspective, as the IRS is processing millions of returns filed by entities such as partnerships on the Sept. 15 extended deadline—and received millions more from individuals on the Oct. 15 extended filing deadline.

The IRS has suspended most non-essential services, including live taxpayer assistance, processing of paper returns, and many examinations. However, so-called critical enforcement functions, such as automated collection notices and certain levy actions, may still proceed.

This creates a unique challenge: Taxpayers may continue to receive collection letters or automated notices, but their ability to reach an IRS representative to resolve the issue may be limited. In other words, the system keeps moving, but the people behind the notices are no more accessible (or helpful) than the Wizard of Oz.

When the shutdown began, like many attorneys who practice tax litigation, my inbox was flooded with court filings for all of my pending federal district court cases. I only have one opponent in court: the US government. Any civil case in which the US is a party is suspended until further notice.

The general order entered in pending cases referred to the court’s desire to avoid prejudicing either the US or civil litigants, but in reality, it’s US citizens involved in civil litigation with the government who are being prejudiced by this shutdown. That’s because all discovery deadlines and hearings have been suspended.

There is real value in holding the government’s feet to the fire when it comes to answering complaints and discovery motions such as interrogatories—and that’s not an option here.

Taxpayers at large may be the biggest losers when it comes to the stay. The IRS paid about $3.7 billion in interest on refund claims in 2024 and about $9.1 billion in 2023. The longer cases in which the government owes a taxpayer money linger, the more money the government wastes in paying taxpayers interest on refund claims, which is currently 7% for non-corporate taxpayers.

The US Tax Court is likewise impacted by the shutdown. The court remains open for business, such as filing petitions and pleadings, but I have been contacted by IRS counsel in my pending tax court cases explaining they didn’t expect to be able to work past midnight Oct. 7. The Tax Court announced Oct. 6 that if the shutdown continues, upcoming trial sessions through the end of October are canceled.

Taxpayers who receive a notice of deficiency or any other notice that carries rights to go to Tax Court—without exception—must file a Tax Court petition on time, despite the shutdown. While there has been some recent positive progress in case law establishing that there may be “equitable tolling” that extends the time to file a tax court petition, it would be unwise to test whether those cases can apply to a government shutdown.

The IRS’s contingency plan for shutdowns, which went into effect Oct. 8, outlines which functions are considered essential and will keep working. Notably, the criminal investigation function is fully operational. According to the contingency plan, the IRS has 2,683 active in-house criminal investigations and an additional 3,541 investigations that are in some form of adjudication (meaning they have been escalated to either the Department of Justice or a US Attorney’s office).

Another important function that isn’t being affected by the shutdown is monitoring expiring statutes of limitations. The IRS generally determines additional amounts due well in advance of the three-year statute of limitations (three years is the general rule), but not always.

I have litigated cases when that wasn’t the case, and the IRS waited until the very last day to preserve its rights to assess additional tax. So taxpayers who are hoping their tax problems will magically go away during the shutdown shouldn’t count their chickens.

The ongoing government shutdown also has created significant delays in the release of critical IRS guidance, leaving taxpayers, businesses, and advisers uncertain about how to comply with major changes under the tax reform law enacted in July.

The IRS already was facing an incredibly difficult task of implementing the regulatory and form guidance needed to implement the GOP tax package by the 2026 filing season with the massive workforce reduction.

This most recent complete work stoppage, coupled with the loss of key employees who had years of experience, adds more obstacles to the bumpy road of implementing the law and providing taxpayers with the guidance they need to effectively plan for tax compliance.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Guinevere Moore is managing member of Moore Tax Law Group, a tax controversy firm in Chicago.

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