Legislative & Policy Developments

Covering October 1 – November 30, 2025

Executive Summary

The final months of 2025 brought major operational and policy developments that directly impact IRS managers and senior leaders. The 43-day government shutdown—the longest in U.S. history—created significant disruption in taxpayer services, staffing, and workflow sequencing. IRS resumed full operations in mid-November, and back pay was initiated on November 19, but elevated workloads and uneven inventories persist across business units. FY 2026 funding negotiations also remain unresolved, with House and Senate bills in sharp disagreement on IRS resources and key policy riders.

Meanwhile, implementation of the One Big Beautiful Bill Act (OBBBA) continues to accelerate, with new deductions, expanded information-reporting requirements, and transitional penalty relief shaping early-2026 work. IRS also released major inflation-adjustment guidance and retirement-plan updates for 2026—changes that affect employees as taxpayers and fuel increased inquiries to IRS phone lines, TAC offices, and correspondence units.

As managers work to rebalance post-shutdown priorities—backlogs, filing-season readiness, and statutory implementation—PMA is steadfast in advocating for the resources, clarity, and support IRS managers and executives need.

Quick Key Takeaways from this Update

• IRS operations were disrupted from Oct. 8 – Nov. 12, causing service delays, furloughs, and major backlogs.
• Back pay began processing on Nov. 19, but workforce stress and uneven workloads continue into December.
• FY 2026 funding is not yet resolved, with competing House/Senate bills affecting IRS enforcement, Direct File, and IT resources.
• OBBBA implementation is accelerating, bringing new deductions for tips/overtime expanding information-reporting rules.
• IRS issued key tax-year 2026 updates, including standard deduction increases, bracket shifts, credit adjustments, and retirement-plan limit changes.
• Managers should expect higher call, TAC, and correspondence volume as workers, employers, and individuals navigate new provisions.
• Internal communication and team support are critical as employees recover from shutdown impacts and prepare for filing season.

Read more:
1: Shutdown ends and operations resume

• The 2025 government shutdown lasted 43 days and ended when the President signed a funding bill on November 12, 2025, making it the longest shutdown in U.S. history.
• On November 19, IRS formally announced it had resumed normal activities after the shutdown, including:
  • Reopening Taxpayer Assistance Centers (TACs) and enabling taxpayers to reschedule canceled appointments using the SMART Scheduler and TAC phone lines.
  • Publishing resumption FAQs for Exams, Collections, and Appeals to explain how cases will move forward.
  • Noting that Taxpayer Advocate Service (TAS) offices are open but will triage and address the most critical emergencies first.

Back pay and workforce impacts

• IRS originally sent mixed messages about back pay timing, prompting criticism from NTEU; by November 14, IRS told employees it expected the “majority” of shutdown back pay to be issued on November 19 in coordination with the National Finance Center.
• Shutdown-related furloughs came on top of earlier workforce reductions in 2025, leaving IRS to restart operations with fewer staff and significant backlog pressures.

What IRS managers and executives should know

• Expect prolonged delays in some inventory streams and elevated taxpayer frustration, particularly in correspondence, collection notices, and Appeals.
• Managers should monitor employee morale and burnout, given the combination of furlough stress, back-pay uncertainty, and rising workloads.
• Local leadership may need to re-sequence priorities to balance implementation of new law (One Big Beautiful Bill Act), filing-season readiness, and customer service, especially in high-visibility operations.

2: FY 2026 Appropriations and IRS Budget Outlook

Although final FY 2026 appropriations are still pending, key developments in late November will shape planning for IRS managers:

• On November 24, Senate appropriators released their draft FY 2026 Financial Services and General Government (FSGG) bill for Treasury, IRS, and the SEC. The bill:
  • Provides $3.2 billion for Taxpayer Services, higher than the FY 2025 operating plan ($2.78 billion).
  • Keeps enforcement funding flat at about $5.4 billion, in contrast to House proposals that would cut IRS enforcement.
  • Provides about $3.19 billion for IT and operations support, less than the House proposal (~$3.75 billion) but more than Treasury’s own request (just under $2.6 billion).
• The House FSGG bill (H.R. 5166) passed committee earlier and includes several policy riders that would directly affect IRS operations:
  • A rider blocking funding for a free, public electronic return-filing service (e.g., Direct File) unless specifically approved by the tax-writing and appropriations committees.
  • Limits on IRS firearms and ammunition purchases.
• Importantly, the Senate bill omits the Direct File and firearms riders, creating a key point of difference that will need to be resolved in conference.

What IRS managers and executives should know

• The Senate draft would strengthen taxpayer services and preserve enforcement capacity, which is relevant for workforce planning, hiring, and training decisions for FY 2026.
• The future of Direct File-type services remains uncertain because of House riders; managers should be aware of the policy debate when communicating with employees or external stakeholders.
• Differences between House and Senate bills mean that final funding levels and restrictions are not yet settled; managers should plan for multiple scenarios (status quo vs. constrained enforcement/IT funding) until a final omnibus or minibus is enacted.

3: Implementation of the One Big Beautiful Bill

Implementation of P.L. 119-21, the One Big Beautiful Bill Act (OBBBA) continues to be one of IRS’s main statutory workloads, with several important developments in October and November.

a. “No Tax on Tips” and “No Tax on Overtime”

• On October 9, IRS announced tax year 2026 inflation adjustments for more than 60 provisions, including changes driven by OBBBA (standard deduction for 2025 returns, rate brackets, and various thresholds). These are captured in Rev. Proc. 2025-32 and the associated news release IR-2025-103.
• On November 5, Treasury and IRS issued IR-2025-110 and Notice 2025-62 (published in Internal Revenue Bulletin 2025-48) granting penalty relief for tax year 2025 to employers and other payors facing new information-reporting obligations for:
  • Qualified tips eligible for the new “no tax on tips” above-the-line deduction, and
  • Qualified overtime compensation qualifying for the new overtime deduction.
  For 2025, IRS will waive certain penalties under sections 6721 and 6722 for failures to file or furnish correct information returns/payee statements tied to these new rules, provided certain conditions are met.
• On November 21, IRS and Treasury released additional guidance for individual taxpayers who received tips or overtime in 2025, explaining:
  • Eligibility for the up to $25,000 annual tips deduction (phasing out above $150,000 / $300,000 MAGI).
  • Eligibility for the overtime deduction (up to $12,500 / $25,000 for the premium portion of overtime).
  • Record-keeping expectations for workers, since Forms W-2 and 1099 will not separately identify deductible amounts for 2025.

What IRS managers and executives should know

• These provisions will significantly affect taxpayer assistance, outreach, and forms/instructions work heading into the 2026 filing season. Front-line managers in Wage & Investment, SB/SE, and TAS should ensure teams are:
  • Familiar with the basic eligibility and documentation rules for tips and overtime deductions.
  • Prepared for higher call and correspondence volume from workers and employers trying to understand the new benefits and reporting obligations.
• For business operating units (e.g., in payroll/HR or those advising government employers), the penalty-relief window for 2025 is transitional only; managers should encourage timely adoption of updated reporting systems and internal controls to avoid penalties in later years.

b. New information reporting for vehicle loans (OBBBA section 6050AA)

• Notice 2025-57, also highlighted in Internal Revenue Bulletin 2025-45, provides transitional guidance on new information reporting under section 6050AA for certain interest on specified passenger-vehicle loans in a trade or business.
• For calendar year 2025, recipients of such interest can satisfy reporting obligations by providing a statement to the individual borrower with total interest received, and IRS will not impose sections 6721/6722 penalties if that simplified procedure is followed.

What IRS managers should know

• This is narrow but technically complex; it matters most for LB&I, SB/SE, and Chief Counsel staff working with auto-finance, dealer, and financial institution taxpayers.
• The recurring theme: OBBBA implementation is being phased in with transitional relief, but the long-term reporting architecture will be more demanding and will require sustained training and guidance support.

c. Other technical guidance affecting planning

• Internal Revenue Bulletin 2025-48 also includes Rev. Rul. 2025-22, setting new overpayment and underpayment interest rates for the quarter beginning January 1, 2026, and Rev. Proc. 2025-31, a safe harbor for certain digital-asset staking trusts.
• These developments will primarily affect specialty exam functions, TE/GE, and Chief Counsel, but they also feed into systems programming and notices as rates are updated.

4: Employee Benefits and Retirement–Updates

While not IRS-specific policy, several IRS announcements in October–November are relevant for managers and SES as federal employees and as plan administrators for certain programs:

• IRS’s inflation-adjustment guidance (Rev. Proc. 2025-32 and related releases) includes updated thresholds and standard deductions for tax year 2026 and adjustments for numerous credits, exclusions, and estate and gift tax parameters.
• IRS also released 2026 retirement plan contribution limits (401(k), IRAs, etc.) in mid-November, enabling agencies and private-sector employers to finalize plan communications for 2026.

What IRS managers should know

• These changes affect IRS employees as taxpayers, but they also drive questions to IRS phone lines and walk-in sites.
• Managers might want to ensure that front-line employees have ready references (e.g., updated tables) for 2026 limits and inflation-adjusted thresholds, and that internal communications to staff about their own TSP/retirement planning reflect the new numbers.

5: Operations / Business Leadership Updates

A few additional items from October–November 2025 have operational significance:

• IRS post-shutdown priorities: External analyses of IRS’s post-shutdown posture highlight that, despite limited operations, IRS continued:
  • OBBBA implementation and 2026 filing-season programming,
  • Remittance processing and statute-protection workloads, and
  • Limited live telephone assistance.
  As operations resume, IRS leadership is emphasizing careful sequencing of backlog work, filing-season readiness, and law-implementation tasks.
• Nationwide Tax Forum Online: On November 4, IRS launched the 2025 Nationwide Tax Forum Online, providing tax professionals with on-demand access to seminars, including sessions on new law changes. This supports the broader strategy of leveraging online education to compensate for reduced in-person outreach capacity post-shutdown.

What IRS managers and executives should know

• Business units should expect continued pressure to modernize and digitize service delivery (online tools, virtual forums) even as traditional phone and TAC inventories recover.
• Senior executives may need to reset performance expectations and metrics for FY 2026 to reflect the combined impact of the shutdown, OBBBA implementation, workforce cuts, and still-evolving FY 2026 appropriations.

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