IRS Faces Severe Tech Failures and Staffing Shortages During 2026 Filing Season, GAO Report Reveals

WASHINGTON — While the vast majority of American taxpayers navigated a relatively smooth path through the 2026 tax filing season, those who relied on traditional paper methods—such as mailing in returns, receiving paper refund checks, or visiting the Internal Revenue Service (IRS) in person—encountered profound bottlenecks. According to a newly released U.S. Government Accountability Office (GAO) report, a combination of acute staffing losses, critical information technology failures, and sweeping federal mandates to modernize payment systems brought unprecedented delays to the agency’s legacy operations.

The findings were detailed in the GAO report titled 2026 Filing Season: Preliminary Observations on IRS Performance, dated July 23 and made public on Monday. The document sheds light on the growing operational strain within the nation’s tax administration agency as it attempts to balance technological upgrades with declining human resources and shifting federal directives.

Main Facts

The 2026 tax filing season exposed deep vulnerabilities in the IRS’s paper processing infrastructure and customer-facing operations. Despite processing approximately 98% of the 177 million individual and business returns received—matching the high completion rate of 2025—the agency struggled heavily where automation failed.

Key high-level takeaways from the GAO report include:

Severe Technology Outages: The IRS’s individual paper return processing system was entirely incapable of processing tax year 2025 returns during the first six weeks of the filing season. Simultaneously, the scanning system dedicated to business paper returns remained completely unavailable throughout the entire filing period.
Plummeting Staff Levels: The IRS submission processing unit closed out the filing season with approximately 8,100 employees, representing an 18% decline from the previous year. The agency shed roughly 2,900 workers in this division by the close of fiscal year 2025, largely driven by deferred resignation and early retirement incentives.
Prolonged Processing Delays: Because of technological blackouts and workforce reductions, the average processing time for paper individual returns nearly doubled, climbing from 16 days in 2025 to 30 days in 2026. Business filings suffered even worse fates; Form 941 (Employer’s Quarterly Federal Tax Return) spiked to an average processing time of 72 days, compared to 45 days in 2025 and 25 days in 2024.
Heavy Reliance on Third-Party Vendors: To manage the mountain of unprocessed business filings, the IRS outsourced scanning operations on an unprecedented scale. The agency forwarded roughly 3.7 million business paper returns to external vendors—a staggering 725% increase from the 443,000 sent out the prior year.
Mandate-Driven Refund Slowdowns: Driven by a 2025 executive order compelling federal agencies to phase out paper checks in favor of electronic payments, the IRS issued millions of compliance notices demanding direct-deposit details, dramatically slowing the distribution of paper refunds.

દChronology of the 2026 Filing Season

The structural and operational hurdles faced by the IRS developed through a distinct timeline leading up to and throughout the 2026 filing window:

Fiscal Year 2025: Workforce Reduction and Procurement Bottlenecks

The foundations for the 2026 filing season challenges were laid months prior. Through deferred resignation and early retirement programs, the IRS shed approximately 2,900 submission processing employees by the end of fiscal year 2025. According to agency officials who spoke with GAO investigators, these losses disproportionately impacted experienced IT acquisition staff. The departure of these procurement specialists directly delayed critical contracting actions required to execute programming updates for incoming tax law changes and to facilitate the agency’s planned migration away from paper refund checks.

January – February 2026: The Filing Season Opens to System Failures

As the 2026 filing season officially kicked off, the IRS confronted immediate technical crises. The core system designated for handling individual paper returns malfunctioned, rendering it unable to process tax year 2025 returns for the first six weeks of the filing period. Compounding the issue, the scanning infrastructure designed for business paper returns was entirely unavailable from day one. Realizing internal capacity was crippled, the IRS pivoted rapidly toward external solutions, dramatically increasing its reliance on private contractors to scan incoming documents.

March – April 2026: Direct-Deposit Mandate Interventions

In accordance with the 2025 executive order prioritizing electronic payments over paper checks, the IRS initiated a massive outreach campaign in the spring. By early May, the agency had dispatched approximately 4.2 million notices to taxpayers requesting verified direct-deposit information before their refunds could be released electronically. Under agency guidelines, taxpayers who failed to respond within a mandatory 30-day window were reverted to receiving a paper check—a process that was now severely bottlenecked. By early April, the volume of paper refund checks issued had plummeted by over 80% compared to the same period in the previous year.

May 2026 Onward: Winding Down and Resource Shifts

As the filing season drew to a close, the IRS successfully reduced its overarching correspondence backlog—lowering its inventory of unresolved cases to 6.8 million from 7.6 million at the end of the 2025 filing season—by aggressively shifting personnel and resources toward correspondence management. Nonetheless, in-person assistance units remained understaffed, marking a quiet and strained conclusion to the filing period.

Supporting Data and Metrics

The quantitative data compiled in the GAO report underscores the stark contrasts between the experiences of digital-first taxpayers and those reliant on paper, phone, or in-person interactions.

Processing Timelines and Volumes

While 95% of taxpayers successfully e-filed their returns—demonstrating the resilience of the digital ecosystem—the 5% relying on paper faced unprecedented friction:

Individual Paper Returns: Processing time jumped from 16 days (2025) to 30 days (2026).
Business Returns (Form 941): Processing time spiked to 72 days in 2026, up from 45 days in 2025 and 25 days in 2024.
Paper Refunds: The average turnaround time to issue a paper refund expanded from 13 days in 2025 to 36 days in 2026.
Paper Refund Volume: By early April, the total number of paper refund checks issued fell by more than 80% year-over-year.
Vendor Scanning: The IRS outsourced 3.7 million business paper returns to outside vendors, a 725% increase over the 443,000 outsourced during the previous filing season. By the end of the season, these vendors had scanned nearly all assigned returns—handling more than four times the volume processed internally by IRS staff.

Customer Service and Telephony Metrics

The IRS customer service landscape experienced a rebalancing of traffic, characterized by fewer inbound calls and a higher reliance on automation:

Total Inbound Calls: The IRS received 24.7 million calls during the filing season, representing a decrease of 3.1 million calls compared to 2025.
Call Handling: Out of 11.7 million calls actually answered by the agency, 41% were handled entirely through automation, an increase from 34% the previous year.
In-Person Assistance: Taxpayer Assistance Centers (TACs) served 626,000 taxpayers in person, down from 745,000 in 2025.
Staffed Centers: The number of fully staffed assistance centers dropped precipitously to 42, down from 102 a year earlier.

Official Responses

The release of the GAO report has prompted internal review and technical feedback from federal administrators.

Prior to the report’s publication, IRS officials were provided a draft copy to review. Agency leadership submitted technical comments and clarifications, which the GAO incorporated into the final published document where appropriate.

While the IRS has not formally disputed the operational findings of the report, agency representatives have repeatedly pointed to the compounding difficulties of simultaneously managing sweeping federal modernization mandates—such as the transition away from paper checks—while navigating aggressive fiscal year workforce reductions and aging legacy information technology systems. The loss of specialized procurement and IT acquisition personnel was acknowledged as a critical vulnerability that directly hindered the agency’s ability to swiftly procure technological patches and software adaptations ahead of the filing window.

Implications for the Future of Tax Administration

The challenges documented in the GAO’s 2026 filing season report carry significant policy and operational implications for the future of the Internal Revenue Service and the American tax system:

1. The High Cost of the Digital Transition

While federal mandates pushing toward electronic payments and digital-first filing are designed to secure long-term efficiencies, reduce administrative costs, and curb fraud, the 2026 rollout demonstrates the severe short-term risks of executing these transitions prematurely. Taxpayers who lack access to reliable high-speed internet, digital banking infrastructure, or technological literacy bore the brunt of the administrative friction. The sharp drop in paper check issuance, paired with communication delays regarding direct-deposit details, highlights the vulnerability of populations who rely on traditional financial instruments.

2. The Vulnerability of Institutional Knowledge

The loss of 2,900 submission processing employees through early retirement and deferred resignation programs exposed a dangerous reality: institutional knowledge is difficult to replace quickly. The subsequent bottlenecks in IT procurement prove that administrative downsizing cannot be executed in a vacuum. When specialized acquisition staff depart without adequate succession planning, the agency’s capacity to maintain, update, and repair critical software infrastructure collapses.

3. Increased Reliance on Private Contractors

The dramatic 725% increase in outsourced business document scanning—with external vendors processing more than four times the volume of IRS personnel—raises long-term questions regarding agency self-sufficiency and data security. While outsourcing successfully prevented a complete gridlock of business filings during the system outages, heavy reliance on third-party contractors shifts core governmental functions into the private sector, potentially altering the operational model of the IRS moving forward.

4. Pressure on Congress and Oversight Bodies

As lawmakers review the GAO findings, pressure is likely to mount on Congress to provide targeted funding specifically earmarked for IT infrastructure resilience and human capital retention. Without dedicated investments to overhaul legacy systems and stabilize the workforce, future filing seasons will remain vulnerable to systemic disruptions whenever automation tools fail.

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