One of the most successful filing seasons in recent memory" still had a few potholes — and cutbacks at the Internal Revenue Service portend tougher seasons ahead, according to the latest report to Congress by the National Taxpayer Advocate Erin Collins.
"With the IRS workforce reduced by 26% and significant tax law changes on the horizon, there are risks to next year's filing season," Collins said. "It is critical that the IRS begin to take steps now to prepare."
The service received nearly 141 million individual income tax returns and processed about 138 million this tax season, according to the National Taxpayer Service
Those numbers, the report adds, were despite the IRS workforce falling from some 102,000 employees to fewer than 76,000, a drop of about 26%, between the start of the 2025 filing season and June.
Nagging troubles
In "a largely successful 2025 filing season," concerns remain about persistent refund delays for victims of identity theft, delays in processing Employee Retention Credit claims and other "critical challenges."
One longstanding and unresolved season challenge: lengthy delays in resolving ID theft cases. IRS filing filters flagged about 2.1 million returns as potentially subject to ID theft, and sent a letter to taxpayers notifying them they had to authenticate their identities before receiving their refunds. "The IRS typically takes several months to resolve these cases," the report adds.
In the second most common category, a thief steals a taxpayer's identity and files a return using the taxpayer's name and Social Security numbers. These cases are referred to the IRS's Identity Theft Victim Assistance unit for resolution. As of the end of last season, according to the report, the IRS had some 387,000 IDTVA cases in inventory that were taking an average of 20 months to resolve. In FY23, 69% of affected taxpayers also had adjusted gross incomes at or below 250% of the federal poverty level.
"IRS leadership has repeatedly assured TAS that reducing cycle time for IDTVA cases is a top priority, yet the cycle time remains unacceptably long," Collins wrote.
Collins warned that without improved technology, IRS staffing cuts could also impact next year's season. The agency "needs a sufficient number of trained employees to program its processing systems, develop and disseminate timely and clear guidance on tax law changes, answer telephone calls and process correspondence, among other things," she wrote.
IT staffing was cut 27% and Taxpayer Services staffing by some 22% (more than 9,000 employees). "The administration's FY26 budget proposal calls for keeping Taxpayer Services staffing at about FY25 levels," the report reads. "The IRS will need to rapidly hire and train thousands of new Taxpayer Services employees before the 2026 filing season."
Collins recommended that the IRS should prioritize three taxpayer-focused IT projects, starting with enhancing online accounts "that mirror the robust functionality offered by banks and other financial institutions." The functionality of IRS online accounts is limited: Taxpayers still generally cannot file returns, view most notices or respond to notices through their online accounts.
Other needed priorities:
- Digitizing processing of paper-filed tax returns, correspondence and other documents. ("IRS employees manually transcribe data from paper-filed tax returns, digit by digit, into IRS systems. The IRS has allowed taxpayers to upload their responses to IRS notices through a digital 'Document Upload Tool,' but it does not have a way to process responses using automation.")
- Integrating some 60 disparate case-management systems. ("A taxpayer who calls the IRS to discuss an account issue may find the customer service representative who answers lacks access to the relevant account information or must open multiple case management systems on different screens and toggle among them to answer questions.")
The Taxpayer Advocate's key advocacy objectives for the upcoming fiscal year also include:
- Reducing ID Theft Victim Assistance resolution time to four months;
- Strengthening oversight of unethical preparers;
- Expediting resolution of Centralized Authorization File number suspensions;
- Completing processing of ERC claims;
- Improving responses to Freedom of Information Act requests;
- Strengthening Appeals' independence and efficiency; and,
- Improving the IRS criminal voluntary disclosure practice.
