Shutdown Impact on IRS and Congress Will Linger after Government Reopens

President Donald Trump signed legislation reopening the government on November 12, 2025, but the longest shutdown in government history could have a lasting impact on the IRS and the outlook for tax legislation.

The 43-day shutdown began on October 1 and largely centered around the expiration of enhanced Affordable Care Act (ACA) credits. Moderate Senate Democrats eventually brokered a compromise that passed the Senate with eight Democratic votes on November 10. The bill then passed the House 222-209 with six Democratic votes on November 12 and was immediately signed by the president. 

The legislation generally extends government funding through January 30, 2026, while providing year-long funding for some functions through three appropriations bills. The compromise agreement also provides backpay for furloughed employees, reverses job cuts made during the shutdown, and includes assurances from Republicans that the Senate will vote by mid-December on a bill to extend the enhanced ACA credits.

Tax Legislative Outlook

The promise of a mid-December vote in the Senate gives lawmakers time to try and reach a bipartisan agreement on extending the ACA credits. If a deal is reached, it could provide a vehicle for other tax legislative priorities. Negotiations could prove difficult, however, and there is no guarantee that a Senate bill would be taken up by the House.

With the next funding deadline postponed until 2026, there may not be any other year-end legislative vehicles to carry tax priorities. Action could still be possible for bills with overwhelming bipartisan support. Key initiatives include:

• Digital Assets: The chair and ranking member of the Senate Agricultural Committee released a bipartisan discussion draft of legislation to create a new market structure for digital assets, but work on the tax issues lags behind. It will be difficult for lawmakers to complete legislation by year-end.
• Extenders: Several tax provisions are scheduled to expire at the end of the year, including the work opportunity tax credit, the seven-year recovery period of motorsports complexes, and expensing for film, television, and theatrical productions. In the past, Congress has often waited a year or more after expiration to retroactively reinstate “extender” provisions.
• Tax Treaty Benefits for Taiwan: There is significant bipartisan support for H.R. 33, which would confer tax treaty-like benefits on Taiwan and which passed the House earlier this year on a 423-1 vote. 
• Gambling Deduction: Lawmakers from both parties are pushing to reverse a change introduced in the One Big Beautiful Bill Act (OBBBA) that limits the deduction for gambling losses.
• Tax Administration Bills: Lawmakers have enacted two tax administration bills this year to limit IRS math error authority and expand disaster relief, and there are several other House-passed bills awaiting Senate action. Senate Finance Committee Chair Mike Crapo, R-Idaho, and ranking member Ron Wyden, D-Ore., have also released a discussion draft and summary of a broader tax administration bill.

Reconciliation Bill

Republicans are increasingly discussing ideas for a potential second reconciliation bill. Republicans facing backlash over ACA credits have floated the possibility of using the reconciliation process to address health care costs, and President Trump has called for scrapping and replacing the ACA altogether. 

A Supreme Court decision striking down tariffs under the International Emergency Economic Powers Act (IEEPA) could also prompt a policy response from congressional Republicans. Some Republicans, however, have grown wary of the administration’s tariffs. Several Senate Republicans joined Democrats in three separate votes last month approving resolutions that would end the emergencies, allowing for certain reciprocal tariffs. Comments from Treasury Secretary Scott Bessent also indicate the administration favors leveraging other existing available tariff authority if the Supreme Court rejects the IEEPA tariffs.

President Trump has also teased a $2,000 tariff “dividend” for “everyone” except “high-income people.” The administration has offered no further details on the proposal, and Republicans have not yet embraced it. Bessent downplayed Trump’s comments, saying on ABC’s “This Week” that the “dividend” may just refer to the tax cuts already enacted as part of the OBBBA. 

Republican lawmakers have also threatened retaliatory legislation against other countries if Pillar Two negotiations fail. Without Democratic support, any legislation would likely have to move through the reconciliation process. 

IRS Impact

The IRS workforce has now returned to work, but the extended furloughs and permanent reductions over the past year will impact IRS operations for some time. The 35-day shutdown from December 2018 to January 2019 created significant IRS backlogs.

The furloughs began on October 8 after the IRS’s original shutdown contingency plan expired. Under the furlough plan, nearly 35,000 of the IRS’s 74,299 employees stopped working. The IRS has also permanently lost approximately 25,000 employees over the past year. The 1,300 employees who received reduction in force notices during the shutdown should be retained under the government funding agreement.

During the shutdown, the IRS stopped processing business, trust, and other refunds, reduced telephone customer services, slowed down the guidance process, and suspended most Appeals, Examination, and Taxpayer Assistance activities. These processes should now resume, but demand will be heavy and there will be significant backlogs. The IRS will also be rushing to finish OBBBA guidance and prepare for the filing season.