On the surface, this year’s tax season began without a hitch. But behind that calm start, watchdogs see a storm gathering.
A sweeping new report from the independent National Taxpayer Advocate warns that the IRS is heading into the 2026 filing season with fewer staff and aging technology, at a time when the tax code keeps getting more complicated.
The report landed just as Congress, after weeks of brinkmanship, finally approved a funding package to keep most of the federal government operating through the rest of the fiscal year. For the IRS, the timing could hardly be worse. Years of cuts and unfinished reforms have already stretched the agency thin, and the new deal adds fresh uncertainty about whether it will have the capacity to keep things running smoothly.
The Advocate documents delays that stretch for months, and sometimes years, when taxpayers run into trouble. Identity theft cases can now take close to two years to resolve. Amended returns and disputed refunds routinely leave people stuck in prolonged financial limbo.
The reasons are not hard to understand. In 2025, the IRS lost roughly 27 percent of its workforce, including more than one in five customer service representatives. Veteran employees left in large numbers, taking institutional knowledge with them. Facing severe staffing shortages, the IRS has begun reassigning employees from human resources and IT—many with no tax background at all—to answer phones and process returns during filing season. Hiring has lagged badly, with some units filling only a sliver of authorized positions ahead of the 2026 season. What remains is a smaller, less experienced staff trying to administer a tax code that has only grown more complex.
The technology problem is not new. As far back as 2000, the Government Accountability Office warned that the IRS was trapped in a paper-heavy system where returns had to be physically opened, sorted, transcribed, shipped, stored, and later retrieved because core systems could not accept or share data. Without sustained investment, the agency would keep burning staff time fixing avoidable errors and lose sight of taxpayer histories scattered across fragmented databases.
Congress briefly appeared ready to change that. The 2022 Inflation Reduction Act promised nearly $80 billion to modernize the IRS. But over the past three years, lawmakers have steadily walked that commitment back. More than half of the funding—$41.8 billion—has already been rescinded, with the deepest cuts hitting enforcement and long-term capacity. Last year, the Treasury Inspector General for Tax Administration found that the IRS was using what remained of the funding simply to keep the lights on, covering routine operating costs because annual appropriations stayed flat and failed to keep pace with inflation.
Modernization slowed, then stalled. In early 2025, the agency shut down its 80-person Transformation and Strategy Office, paused major projects, and canceled dozens of contracts tied to long-promised technology upgrades.
The result is a system increasingly optimized for appearances rather than outcomes. The IRS can point to improved phone “service levels,” but those metrics mostly track how many calls are routed, not whether problems are actually resolved. Large numbers of callers still never reach a human being.
What makes the moment particularly fraught is the timing. With the passage of the One Big Beautiful Bill Act, Congress has layered on another major tax overhaul—new deductions, eligibility tests, and phaseouts—even as it pulls back the staffing and funding the IRS needs to administer them.
Even with another government shutdown averted, the enacted funding package locks in roughly $11.7 billion in additional cuts to the IRS’s Inflation Reduction Act funding. Combined with earlier rescissions, the agency is left with less than $10 billion of the nearly $80 billion Congress originally approved for modernization. What was meant to be a long-term rebuilding effort has instead become a rolling contingency plan to keep basic operations afloat while the foundation quietly erodes.
Here’s the kicker. Cutting the IRS’s ability to enforce the tax laws does not lower tax rates. The predictable result is more cheating, more confusion, and more unresolved disputes. It rewards those willing and able to push the limits while penalizing taxpayers trying to follow the rules.
The IRS’s most recent tax gap estimate puts unpaid and underpaid federal taxes at roughly $696 billion for tax year 2022, with more than three-quarters coming from underreporting. Most of that lost revenue flows from income that is hardest to police, such as business and pass-through income with little or no third-party reporting, and therefore most dependent on experienced auditors and functional data systems. When staffing and systems fall short, the gap widens quietly, year after year, shifting the burden onto taxpayers who cannot hide their income.
Congress understood that tradeoff when it debated the Inflation Reduction Act. The Congressional Budget Office estimated that sustained IRS investment would raise about $180 billion over a decade by improving compliance at the top of the income scale. It has also been blunt about the cost of pulling back. A $5 billion rescission reduces revenues by roughly $5.2 billion over ten years. A $35 billion rollback cuts projected revenues by about $89 billion and adds more than $54 billion to the deficit by 2034. In other words, cutting enforcement does not save money.
The National Taxpayer Advocate now warns that the IRS may not be fully prepared for the 2026 filing season, citing missed hiring targets, steep workforce reductions, and technology initiatives unlikely to arrive in time to offset those losses. The Treasury Inspector General has reached much the same conclusion.
For now, most taxpayers will file, receive their refunds, and move on. But for those who don’t fit the model—the victims of fraud, small business owners correcting past returns, companies navigating new OBBBA provisions, or families waiting on disputed refunds—this may be the calm before the storm breaks.
