IRS Navigates Severe IT Outages, Staffing Shortfalls, and Digital Mandates During the 2026 Filing Season, GAO Report Reveals

WASHINGTON — While the vast majority of American taxpayers experienced a relatively standard and uneventful tax season in 2026, a significant demographic of filers bore the brunt of profound operational friction. According to a comprehensive, newly released report from the U.S. Government Accountability Office (GAO), individuals and businesses relying on paper tax returns, paper refund checks, or in-person IRS customer service faced sweeping delays this year.

The report, titled 2026 Filing Season: Preliminary Observations on IRS Performance and dated July 23 before being publicly released on Monday, details a convergence of critical technology failures, sharp staffing reductions, and disruptive policy transitions. These compounding factors severely tested the Internal Revenue Service’s resilience, forcing the agency to lean heavily on external contractors and automated systems to maintain baseline operational continuity.

Despite these hurdles, the IRS managed to process roughly 98% of the 177 million individual and business returns it received throughout the filing season—matching its efficiency rate from 2025. This steady processing rate was largely insulated by the overwhelming preference for electronic filing, with 95% of all taxpayers choosing to submit their returns online. However, for those caught outside the digital ecosystem, the structural cracks within the agency’s legacy infrastructure were readily apparent.

Main Facts: The Anatomy of the 2026 Filing Crisis

The GAO report paints a vivid picture of an agency stretched to its operational limits. The core challenges of the 2026 filing season were rooted in three distinct areas: critical hardware and software failures, steep declines in workforce headcounts, and aggressive new federal mandates regarding digital payments.

Technological Failures and System Outages

The IRS’s technological backbone suffered unprecedented disruptions during the critical opening weeks of the tax season. Most notably:

• Individual Paper Return System: The agency’s internal processing system designated for individual paper returns was completely incapable of handling tax year 2025 returns during the first six weeks of the filing season.
• Business Scanning Blackout: A specialized scanning system utilized for processing business paper returns was entirely unavailable for the duration of the entire filing season.

To prevent total gridlock, the IRS was forced to execute a massive pivot to outside vendors. The agency diverted approximately 3.7 million business paper returns to third-party contractors for scanning—representing an astronomical 725% increase compared to the 443,000 returns outsourced the previous year. By the conclusion of the filing season, these vendors had successfully digitized nearly all of the business paper returns routed to them, handling more than four times the volume processed by internal IRS employees.

Staffing Attrition and IT Procurement Delays

Compounding these technical failures was a severe contraction in personnel. The IRS’s submission processing unit closed out the filing season with approximately 8,100 employees, marking an 18% decline from the previous year.

The GAO revealed that the agency lost roughly 2,900 submission processing workers by the close of fiscal year 2025. These departures were driven primarily by deferred resignation and early retirement programs. Furthermore, internal agency officials disclosed that the loss of experienced IT acquisition personnel critically bottlenecked procurement actions. These delays stalled essential programming updates required to adapt to evolving tax law changes and to facilitate the agency’s overarching transition away from paper refund checks.

The Shift to Electronic Payments

Adding another layer of operational friction was the implementation of a 2025 executive order directing federal agencies to rapidly phase out paper checks in favor of electronic payment methods.

To comply with this directive, the IRS issued approximately 4.2 million notices to taxpayers by early May, demanding direct-deposit banking information before any refunds could be disbursed electronically. Taxpayers who failed to respond to these notices within a strict 30-day window were relegated to receiving paper checks—a process that took up to six weeks longer.

Consequently, the issuance of paper refunds plummeted. By early April, the total volume of paper refund checks issued dropped by more than 80% year-over-year, while the average processing time required to issue a paper refund ballooned from 13 days in 2025 to 36 days in 2026.

Chronology of the 2026 Filing Season

To understand how these compounding vulnerabilities materialized throughout the year, a chronological review of the filing season reveals the cascading effects of the IRS’s operational bottlenecks:

• Late 2025 (Pre-Filing Season): The IRS concludes fiscal year 2025 having lost roughly 2,900 submission processing employees through early retirement and deferred resignation programs, severely depleting its experienced IT procurement workforce.
• January – February 2026 (The Opening Weeks): As the 2026 filing season commences, the IRS’s individual paper return processing system fails to function, remaining completely unable to process tax year 2025 returns for the first six weeks. Simultaneously, the core scanning system for business paper returns goes offline, failing to recover for the entire filing season.
• March 2026: Recognizing the collapse of its internal paper processing capabilities, the IRS dramatically scales up its outsourcing efforts. The agency routes millions of business paper returns to external vendors, who ultimately process quadruple the volume managed by internal staff.
• Early April 2026: Driven by the federal mandate to phase out paper checks, the IRS issues millions of notices requesting direct-deposit information. The volume of paper refund checks plummets by more than 80% compared to the same period in 2025, and wait times for paper refunds begin to spike drastically.
• Early May 2026: The total count of notices sent out to taxpayers requesting banking information reaches approximately 4.2 million. Meanwhile, telephone demand begins to taper, though automated systems absorb a higher percentage of incoming inquiries.
• July 23, 2026: The GAO officially dates and finalizes its preliminary observations report on the IRS performance, setting the stage for its public release on Monday, July 27.

Supporting Data: Statistical Breakdown of IRS Performance

The quantitative data compiled in the GAO report illustrates both the areas where the IRS faltered and the domains where it successfully reallocated resources to maintain stability.

Customer Service and Telephone Operations

While paper processing saw severe degradation, phone and correspondence metrics showed nuanced shifts. The IRS received a total of 24.7 million telephone calls during the 2026 filing season—representing a drop of approximately 3.1 million calls compared to 2025.

Of the 11.7 million calls successfully answered by the agency, 41% were managed entirely through automation, an increase from the 34% handled automatically the previous year. This growing reliance on automated customer service helped offset human resource shortages.

Furthermore, the agency made a strategic decision to reallocate internal staff toward clearing out accumulated taxpayer correspondence. This pivot bore fruit: the IRS successfully reduced its lingering correspondence inventory down to 6.8 million cases by the end of the filing season, improving upon the 7.6 million backlog recorded at the close of the 2025 season.

In-Person Assistance and Regional Centers

Conversely, physical touchpoints for taxpayers experienced a marked contraction. Taxpayer Assistance Centers (TACs) served 626,000 individuals in person throughout the filing season, down significantly from the 745,000 visitors helped in 2025.

More alarmingly, the physical infrastructure supporting these walk-in interactions shrank drastically. The number of fully staffed assistance centers across the nation plummeted to just 42 locations, compared to 102 fully staffed centers a year prior—highlighting the strain of localized staffing shortages.

Official Responses and Agency Cooperation

The release of the GAO report marks a standard phase in federal oversight, offering both a critique of current agency execution and an opportunity for remediation.

According to federal auditors, officials within the Internal Revenue Service were given the opportunity to review an advanced draft of the GAO report prior to its publication. The IRS provided targeted technical comments and clarifications, which the GAO thoroughly reviewed and integrated into the final document where deemed appropriate.

While the IRS has not yet released a sweeping public rebuttal to the specific findings of the July report, agency leadership has consistently pointed to the massive dual pressure of modernizing legacy technological infrastructure while absorbing federal workforce directives. The transition away from paper—while mandated to enhance long-term security and reduce administrative costs—has exposed acute vulnerabilities during the interim transition period, particularly when core systems experience unexpected outages.

Implications: Looking Ahead for Tax Administration

The findings of the GAO’s 2026 Filing Season report carry profound implications for the future of tax administration in the United States. As the federal government pushes deeper into digital-first governance, the 2026 tax season serves as a cautionary tale regarding the dangers of modernizing systems without securing the necessary human capital and IT resilience to support the transition.

1. The Vulnerability of Hybrid Systems

The stark contrast between the seamless experience of e-filers (who comprised 95% of all submissions) and the protracted delays faced by paper filers highlights a growing digital divide within the tax system. Although the vast majority of citizens are successfully transitioning to electronic platforms, millions of Americans, small business owners, and estate administrators still rely on paper documents. When core hardware and software failures strike paper-processing pipelines, the resulting backlogs are magnified by ongoing workforce reductions.

2. The High Cost of IT Attrition

The GAO report underscores a structural crisis within federal IT procurement. The loss of 2,900 submission processing workers and experienced IT acquisition staff directly crippled the agency’s ability to roll out timely programming updates. Without a stable, well-compensated technical workforce, the IRS remains perpetually vulnerable to procurement delays, leaving it ill-equipped to respond rapidly to shifting tax laws and executive mandates.

3. Policy Realities vs. Administrative Capacity

The friction generated by the 2025 executive order mandating the phase-out of paper refund checks demonstrates the friction that occurs when policy goals outpace administrative readiness. While moving toward electronic payments reduces check fraud and administrative overhead, forcing millions of taxpayers into a 30-day window to provide direct-deposit details—with the penalty of multi-week delays for non-compliance—created an avoidable customer service bottleneck.

For the IRS to successfully navigate future filing seasons, federal lawmakers and agency administrators must reconcile the push for aggressive digital transformation with robust investments in workforce retention, IT redundancy, and transitional support for the dwindling yet vital population of paper-dependent taxpayers.

To comment on this article or to suggest an idea for another reporting project, contact Martha Waggoner at [email protected].