A federal government shutdown began after midnight following the Senate's failure to gain 60 votes for the Republican continuing resolution (CR) to patch funding until November 21. Democrats have insisted that a CR extend enhanced Affordable Care Act (ACA) premium tax credits that expire at the end of 2025, which Republicans have resisted. The September 30 Senate vote on the House-passed GOP CR (H.R. 5371) was 55-45, short of the 60 votes required for passage.

Democrats Catherine Cortez Masto (D-NV) and John Fetterman (D-PA) and Independent Senator Angus King (I-ME) voted in favor of the CR, while Republican Senator Rand Paul (R-KY) opposed. Senate Majority Leader John Thune (R-SD) continues to say action on the ACA subsidies is possible in a future spending bill — not the current CR — depending on input from the White House. Senate Democratic leader Chuck Schumer (D-NY) said following the regular Tuesday policy lunches, "Democrats do not want a shutdown. We stand ready to work with Republicans to find a bipartisan compromise, and the ball's in their court."

A New York Times analysis observed that heightened party polarization in the Senate may be standing in the way of compromise on issues such as the current funding debate. "The ideological makeup of the party has shifted to the left, and Democrats are now bracing for an extended confrontation with the White House and congressional Republicans, despite the clear political risks," the analysis said. "The same dynamic is at play in the G.O.P., which has lurched to the right under Mr. Trump and no longer sees room for compromise."

Next steps are unclear, though the Senate is expected to keep holding votes on the existing CR proposals, possibly into the weekend. Politico reported this morning, "Leaders of both parties are digging in for a lengthy battle — ramping up the blame game and putting the onus on their political opponents to blink if they are going to quickly find a way to reopen shuttered agencies."

Some members have previously suggested movement towards a vote on the enhanced ACA subsidies may be sufficient to win CR votes from some Democrats, and it's possible that assurances from GOP leaders that the issue will be addressed before the end of the year could potentially be a way out of the shutdown. The support of some Democrats for the GOP CR in the September 30 vote was viewed as a sign that more may come aboard, especially as the unpleasant effects of the shutdown are felt.

Premium credits — Punchbowl News September 30 described an uphill battle to get House Republicans to extend the ACA credits, though at least a dozen sponsored a bill for a one-year extension, and proposed ideas for curtailing the enhanced credits, including means-testing the credits or requiring minimum payments from enrollees. "For conservatives, the policy is a double-whammy: an Obamacare item and a Covid benefit. It's quite easy for them to say 'hell no,'" the report said. "All of that would need to be ironed out through a very complicated negotiation that would likely require several weeks."

Politico September 30 reported that Democrats' sense that President Trump is willing to eventually negotiate on the premium tax credits issue, which is confirmed in the report by Administration officials, "is already raising alarms among conservative Republicans, who despise the 2010 Democratic health care law known as Obamacare and who would be more than happy to see a 2021 enhancement of the premium tax credits sunset cold turkey on Dec. 31."

Federal workforce — There is the potential, articulated in a memo to agencies from Office of Management and Budget Director Russ Vought, for the Administration to consider Reduction in Force (RIF) notices for employees of federal programs subject to a September 30 funding lapse and not separately funded by the "One Big Beautiful Bill Act," which included new money for immigration enforcement and defense programs.

"Well, the Democrats want to shut it down. So, when you shut it down, you have to do layoffs. So we'd be laying off a lot of people that are going to be very affected … " President Trump said September 30. "No country can afford to pay for illegal immigration, healthcare for everybody that comes into the country. And that's what they're insisting. And obviously I have an obligation to not accept that."

The Washington Post said the shutdown has the effect of "shuttering many federal offices and services — and leaving three-quarters of a million employees on furlough and others working without pay indefinitely." Additionally, OMB Director Vought "ordered agencies to consider mass firings rather than instituting furloughs. And instructions to agencies from his [OMB] include guidance on rewriting regulations surrounding federal grants and challenging Congress's constitutional power over spending."

IRS — The IRS shutdown plan calls for the agency to remain open for the first five days of a shutdown, using money allotted to the agency under the 2022 Inflation Reduction Act. There was a sense that the agency was trying to move guidance ahead of a potential shutdown. In September 30 guidance:

• Notice 2025-50 provides a definition for "rural area" and guidance for applying the substantial improvement provisions for Opportunity Zone investments in rural areas under the "One, Big, Beautiful Bill Act."
• Notice 2025-46 provides interim guidance regarding the application of the corporate alternative minimum tax (CAMT) to domestic corporate transactions, financially troubled companies (troubled companies), and tax consolidated groups.
• Notice 2025-49 provides additional interim guidance regarding the application of the CAMT and announced the intention to partially withdraw the CAMT proposed regulations and to issue revised proposed regulations that, in part, are anticipated to include rules similar to the interim guidance described in the notice.
• The 2025—2026 Priority Guidance Plan contains 105 guidance projects that are priorities for allocating Treasury Department and IRS resources during the 12-month period from July 1, 2025, through June 30, 2026.

An EY Breaking Tax News Alert on the CAMT guidance is available here.

Crypto tax — The Senate Finance Committee is holding a hearing today (October 1) at 10 a.m. on "Examining the Taxation of Digital Assets," an issue that has gained increasing member interest given the widely recognized lack of specific crypto tax rules. Witnesses include representatives of the industry and the American Institute of CPAs. The hearing is expected to include discussion of a de minimis exemption for low-value personal transactions, the burden imposed in the context of small transactions because digital assets are treated as property, and the use of the mark-to-market method by dealers and traders.

The staff of the Joint Committee on Taxation released a report (JCX-44-25) describing selected tax issues relating to digital assets under present law, "Examining the Taxation of Digital Assets."