Tax professionals are once again monitoring IRS contingency plans due to an appropriations lapse, mirroring a similar situation just a few months prior. Initially, the IRS expects operations to remain largely business-as-usual for the first seven days. However, failure to resolve the funding impasse by the end of this period will likely lead to more substantial cuts in IRS services.

The following technical analysis details the contingency plan authorized by the Department of Treasury on January 30, 2026, specifically examining the interaction between the Anti-Deficiency Act and the supplemental appropriations provided by the Inflation Reduction Act.

Statutory Authority and Funding Mechanisms

The foundational premise of the FY2026 Contingency Plan rests on the specific appropriations provided by recent legislation. The plan explicitly cites that "Section 10301 of the Inflation Reduction Act, Pub. L. 117-169, provided supplemental appropriations available through September 30, 2031, for all IRS appropriations accounts". This statutory provision is the controlling factor preventing an operational shutdown.

Under standard procedures, the Anti-Deficiency Act, codified at 31 U.S.C. §§ 1341 and 1342, "prohibits agencies from obligating funds exceeding, or in advance of, appropriations and from employing personnel during a lapse in appropriations" unless specific exceptions apply. Historically, the IRS relied on exceptions for the protection of life and property to retain a skeleton crew. However, the FY2026 plan categorizes the Service’s continued operation under "Category A," which covers activities "authorized by law and those funded by multi-year, no-year, and revolving funds or advance appropriations that would not be affected by a lapse in an annual appropriation".

Consequently, the Service has determined that "with this funding the IRS will not experience a lapse in appropriations on January 31, 2026, and normal IRS operations will continue".

Operational Status and Workforce Retention

For practitioners representing clients before the Service, the most critical takeaway is the designation of the workforce. The contingency plan reports a total agency employee population of 74,942 prior to implementation. In a marked departure from pre-2022 lapse plans, the IRS has designated 100% of these employees as exempt from furlough.

The plan classifies the entire workforce under Category A1, which denotes that "compensation is financed by a resource other than annual appropriations". As a result, the "Total number of agency employees expected to be on board before implementation of the plan" matches exactly the "Total # exempt positions",. The plan explicitly states that "operations will continue with multiyear non expiring funding".

Breakdowns of specific operating divisions confirm that key compliance and service functions will remain fully staffed:

Taxpayer Service: 33,624 positions retained.
Small Business/Self-Employed (SBSE): 15,143 positions retained.
Large Business & International (LB&I): 4,981 positions retained.
Criminal Investigation: 3,057 positions retained.
Appeals: 1,272 positions retained.
Chief Counsel: 2,191 positions retained.

These figures indicate that examinations, collections, appeals conferences, and general taxpayer assistance will proceed without interruption for this initial seven day period.

Duration and Scope of the Contingency Plan

While the funding authority under the Inflation Reduction Act extends through 2031, the administrative scope of this specific contingency document is limited. The plan notes that it "would go in effect January 31, 2026 and cover bureau operating needs until February 7, 2026". This brief timeline suggests that while the funding is secured for the long term, the administrative protocols for managing a lapse in annual appropriations are reviewed in short intervals to ensure compliance with Office of Management and Budget (OMB) guidance.

The plan further clarifies that while the agency is prepared, "we do not anticipate using the plan," yet "prudent management requires that agencies prepare for this contingency".

Impact on Filing Season Operations

The timing of this potential lapse coincides with the Filing Season (defined in the plan as October 1, 2025, to April 30, 2026). The plan confirms that "Filing Season-based on employee population as of 1/22/26" was the metric used for staffing determinations. Because the entirety of the workforce is supported by non-expiring resources, there is no distinction made in this plan for "Category B" (protection of life and property) or "Category C" (performing shutdown activities), both of which show a headcount of zero.

Tax professionals should proceed with the understanding that all deadlines, compliance actions, and correspondence with the Service will remain effective. The plan definitively rules that "normal IRS operations will continue," for a short time removing the procedural uncertainty that typically accompanies federal budget impasses.

Prepared with assistance from NotebookLM.