The federal government is in shutdown mode. While your development teams keep shipping code and your engineers continue solving tough problems, the agencies that process your R&D tax credits have mostly gone dark. For innovative tech companies that rely on R&D tax credits as a vital source of non-dilutive funding, understanding how shutdowns impact your claims—and what you can do about it—is critical for financial planning.

The Immediate Impact: IRS Operations Nearly Grind to a Halt

The IRS has released contingency plans showing that it will use Inflation Reduction Act funds for IT modernization to keep operations running for about five business days. Now that this window has closed, expect a sharp drop in available staff and service capacity.

What this means for your R&D tax credit claims:

Processing delays will pile up. Even under normal circumstances, tax return processing can take months. During a shutdown, claims filed electronically may be accepted by automated systems, but the human review needed for R&D credits on amended returns for refunds will slow to a crawl or stop completely.

Refunds get stuck in limbo. If your R&D credit results in a refund, that money won’t move until IRS staff can process it. For companies counting on R&D credit refunds for cash flow—like startups and mid-market companies using the payroll tax credit via 941-Xs—this creates immediate financial planning headaches.

Amended returns face the longest delays. If you’re filing an amended return to claim R&D credits for previous years, expect these to be among the last items processed when operations resume. Paper filings will be delayed even further as mail piles up unopened.

Technical guidance requests go unanswered. Need clarification on whether a specific activity qualifies? Looking for a private letter ruling on a complex R&D credit question? These services essentially disappear during shutdowns, leaving companies in the dark as they plan their R&D strategies.

Beyond the IRS: Ripple Effects on Innovation

The shutdown’s impact goes beyond tax processing. For tech companies involved in federally funded research or relying on government partnerships, the effects multiply:

Federal research grants freeze. According to the American Association for the Advancement of Science, past shutdowns have disrupted research funding, delayed grant reviews, and put new awards on hold. If your R&D includes government-funded research, expect project delays and challenges in documenting qualifying activities.

Agency collaboration stops. Companies working on projects with federal agencies or waiting for regulatory approvals for innovative products may see those partnerships paused, potentially impacting the timeline and scope of R&D projects you’re hoping to claim credits for.

Documentation gaps emerge. When government partners are furloughed, getting the necessary documentation—like proof of technical uncertainty or validation of experimental processes—becomes much harder, which can weaken your R&D credit claim.

What Smart Tech Leaders Are Doing Right Now

A government shutdown doesn’t pause your tax obligations, penalties, or interest; it only slows the government’s ability to process your claims. Here’s how to navigate this period strategically:

1. File Electronically and Document Thoroughly

If you haven’t filed your R&D credit claim yet, electronic filing is a must whenever possible. Paper submissions will face major delays, but e-filed returns at least get into the system. Still, don’t expect quick processing for amended returns—human review for R&D credits will still be delayed.

More importantly, now is the time to make sure your claim documentation is rock solid. With processing delays inevitable, the worst-case scenario is finally getting IRS attention months from now, only to face questions you could have answered up front with better documentation.

The Boast platform advantage: Our comprehensive system of record creates audit-ready documentation from day one, so when the IRS does review your claim—whether in two months or twelve—you have bulletproof support for every qualified activity.

2. Recalibrate Your Cash Flow Planning

If you’re counting on an R&D credit refund in a certain quarter, adjust your financial forecasts now. Past shutdowns have lasted anywhere from a few days to over a month, with processing backlogs stretching weeks or months after reopening.

For startups using the payroll tax credit for past quarters via 941-Xs, this is especially important. That expected cash infusion may arrive much later than planned, potentially impacting hiring, burn rate, and runway calculations.

3. Use the Delay to Your Strategic Advantage

While you wait for processing, take the opportunity to review your current and planned R&D activities. Are you capturing all qualifying activities? Is your documentation strategy optimized for both current claims and future audits?

Government shutdowns give you time to strengthen your R&D tax credit strategy. Companies that use this period to improve their processes often come out with stronger claims when operations resume.

4. Don’t Ignore Outstanding Issues

One upside: Audit activity, collection calls, and compliance enforcement usually drop to minimal levels during shutdowns. But this is definitely not a reason to ignore outstanding tax issues. Penalties and interest keep adding up, and problems put off now will only get more expensive to resolve later.

If you’re facing an R&D credit audit or have received IRS notices, keep working with your advisors to prepare responses. When the shutdown ends, the IRS will work through backlogs aggressively, and you don’t want to be caught off guard.

The Bigger Picture: Why This Matters for Innovation Policy

Beyond the immediate operational impacts, government shutdowns raise questions about how reliable R&D tax incentives are as tools for innovation policy. When the agencies responsible for processing these credits are unavailable for weeks or months, the effectiveness of the incentive drops.

For policymakers, this should be a wake-up call: If we want R&D tax credits to drive innovation and competitiveness, the infrastructure supporting these programs needs to be resilient—even during political gridlock. For business leaders, it’s a reminder that optimizing your R&D credit strategy with better technology, documentation, and expertise matters even more when government support is unreliable.

What to Expect When Operations Resume

When the shutdown ends, the IRS will face a massive backlog. History shows a few patterns:

Triage processing. The IRS will prioritize certain returns, usually focusing on current-year filings before amended returns, and straightforward refunds before complex credits that need technical review.

Longer wait times. Even after operations resume, expect IRS phone support and correspondence to stay severely backlogged for weeks or months. Getting answers about your R&D credit claim may take much longer than usual.

Increased scrutiny. When the IRS is back at full strength and working through backlogs, some analysts expect more automation and potentially tougher initial reviews of R&D credit claims to manage the volume efficiently.

Your Action Plan: Turning Uncertainty Into Opportunity

Government shutdowns are frustrating, but they don’t change the core value of R&D tax credits. Innovation keeps moving forward, no matter what’s happening in Washington, and the credits you’re entitled to don’t disappear because of processing delays.

Here’s what you should do now:

Make sure your current claims are filed electronically with thorough documentation. Don’t let processing delays become an excuse for weak documentation that could fail an audit months from now.

Update your cash flow projections to account for refund delays. Build contingency plans that don’t depend on government processing timelines you can’t control.

Conduct a thorough R&D credit opportunity assessment. Use this forced pause to identify qualifying activities you might be missing and optimize your strategy for this year and the future.

Consider expertise that adds value beyond government processing. The shutdown highlights the limits of strategies that rely entirely on smooth government operations. Technology platforms and expert partners that deliver year-round value become even more important when you can’t count on IRS availability.

Why the Boast Approach Matters Even More During Disruptions

Government shutdowns show why Boast’s combination of advanced technology and deep expertise delivers value that generic accounting firms and tech-only competitors can’t match.

Our platform keeps working no matter what’s happening at the IRS, capturing qualifying activities in real time and building documentation that’s ready whenever processing resumes. You don’t lose months of potential qualifying activities just because government operations are on hold.

Our expert team has navigated multiple shutdown cycles and knows how to position claims for successful processing in the post-shutdown backlog, making sure your claims don’t get lost in the chaos when operations resume.

Our comprehensive system of record creates audit-ready documentation that stands up no matter how long it takes the IRS to review your claim, protecting you whether that review happens in two months or twelve.

The Bottom Line

A government shutdown doesn’t stop your tax obligations, but it does slow the government’s ability to meet its own obligations. For innovative tech companies, this creates cash flow uncertainty and operational complexity, but it doesn’t change the fundamental value of R&D tax credits or your responsibility to file accurately and on time.

The companies that will come out strongest from this disruption are those that use the delay strategically: improving documentation, optimizing their R&D credit strategies, and partnering with advisors who add value beyond just government paperwork processing.

Innovation doesn’t stop for political gridlock. Neither should your R&D tax credit strategy.