Taxpayer Advocate foresees tax season challenges at IRS

National Taxpayer Advocate Erin Collins warned in her annual report to Congress that this tax season is likely to bring bigger challenges for taxpayers who encounter problems with the Internal Revenue Service than last year, due to tax law changes and cutbacks at the Internal Revenue Service.

The report pointed out that the IRS began 2025 with approximately 102,000 employees and ended the year with around 74,000, a reduction of 27%. Reductions were made in nearly all IRS functions, including Taxpayer Services, which lost close to 9,000 employees, a 21% reduction from 42,122 to 33,264. Collins' own department, the Taxpayer Advocate Service, lost nearly 500 employees, a more than 25% reduction from 1,971 to 1,475 employees.

"Among the reasons the 2025 filing season went well was that the IRS had its largest workforce in many years and faced no major tax law changes that required implementation during the filing season," Collins wrote. "Entering 2026, the landscape is markedly different. The IRS is simultaneously confronting a reduction of 27% of its workforce, leadership turnover, and the implementation of extensive and complex tax law changes mandated by the [One Big Beautiful Bill] Act, many of which apply retroactively and require significant IRS programming, guidance, changes to tax forms and instructions, and taxpayer education."

Despite the turmoil in staffing, budget cuts and a 43-day government shutdown last fall, the IRS mostly performed well last season, Collins acknowledged, and the majority of taxpayers will be able to receive their tax refunds on time this year as well. However, the year will be different for taxpayers who need extra help or are not used to getting their refunds via direct deposit, since the IRS is phasing out the use of paper checks.

"For the significant majority of taxpayers who file their returns electronically, who include their direct deposit information, and whose returns are not stopped by IRS processing filters, the process will be seamless," Collins wrote. "Their returns will be processed quickly, and if they are due a refund, they will receive it without delay." However, she added, "the success of the filing season will be defined by how well the IRS is able to assist the millions of taxpayers who experience problems."

Last year, the IRS processed over 165 million individual income tax returns. Around 94% were submitted electronically, and 6% (about 11 million) were filed on paper. Approximately 104 million taxpayers (63%) received refunds, with an average refund amount of $3,167. While most refunds were issued in a timely way, about 3.6 million taxpayers received their refunds beyond the IRS's normal processing time, with an average wait time of seven weeks for e-filers and 14 weeks for paper filers.

In addition, Collins noted that longstanding delays in resolving identity theft victim assistance cases remained during 2025, with hundreds of thousands of taxpayers waiting an average of more than 21 months for the IRS to resolve their cases and issue refunds due. Especially for lower-income taxpayers, these delays can create or exacerbate financial hardships. Collins has previously called these delays "unconscionable," and her report reiterates a previous recommendation to keep IDTVA employees focused exclusively on identity theft casework until the average case resolution time is reduced to 90 days.

The report found the combination of staffing reductions and significant retroactive changes in the tax law has created challenges for both taxpayers and the IRS. Reductions were made in virtually all IRS functions, including Taxpayer Services, as shown in the following table:

Of particular importance for taxpayer service are customer service representatives who answer telephone calls and process taxpayer correspondence and casework. The IRS generally receives over 100 million telephone calls and several million pieces of taxpayer correspondence each year. In 2025, the number of CSRs was reduced by 22%. While the IRS backfilled some of these positions late in the year, the number of CSRs remains substantially lower than last filing season, and the new hires have less experience than the employees who departed. 

"To fulfill its mission, the IRS must align hiring decisions with operational needs and emerging challenges, rather than target a predetermined staffing level," Collins wrote. "Workforce planning should be guided by the work necessary to provide timely, accurate service to taxpayers and to protect taxpayer rights, as well as by the most effective ways to deliver those outcomes."

Impact of tax law changes

The One Big Beautiful Bill Act made over 100 changes to the Tax Code. While some of them don't take effect until 2026, key provisions were made retroactive to the beginning of 2025 and must be reported on 2025 tax returns filed during the current filing season.

"While the OBBB Act is generally taxpayer-favorable in that it expands eligibility for certain deductions and benefits," Collins wrote, "the deductions and benefits are subject to complex eligibility rules, income thresholds, and phaseouts that will be difficult for many taxpayers to understand and for the IRS to administer accurately during the filing season."

These benefits include new tax deductions for tip income, overtime pay, and interest paid on auto loans, as well as an additional standard deduction for senior citizens and an increased maximum deduction for state and local taxes.

The report highlights the complexity of these provisions. To cite one example, the following requirements must be met for a taxpayer to claim a deduction for interest paid on auto loans: 

• The vehicle must be new (used car purchases do not qualify);
• The vehicle must have been purchased for personal use (lease payments do not qualify);
• The loan must have originated after Dec. 31, 2024;
• The loan must be secured by a lien on the vehicle;
• The vehicle must carry a gross vehicle weight rating of less than 14,000 pounds;
• The vehicle identification number must be included on the tax return;
• The loan must not have been obtained from a related party; and,
• The vehicle must have undergone "final assembly in the United States."

In addition, the deduction is capped at $10,000 and begins to phase out for taxpayers with modified adjusted gross incomes over $100,000 for single taxpayers and $200,000 for married filing jointly taxpayers at a rate of 20% for each additional dollar of income, fully phasing out for single filers with MAGI over $150,000 and joint filers with MAGI over $250,000. 

Other changes in law have similarly complex requirements. The report warns these changes are likely to create taxpayer confusion, generate more taxpayer calls to the IRS, and potentially result in errors that will lead to refund delays.

Telephone service vs. case processing

Historically, the IRS has used a "Level of Service" telephone measure as a primary taxpayer service metric. The report to Congress highlights the limitations of that measure.

"I recommend the IRS eliminate the LOS as a benchmark performance measure and replace it with a suite of performance measures that better reflect the taxpayer experience and drive improvements in the quality of taxpayer service," Collins wrote.

IRS CEO Frank Bisignano also wants to change that measure.

"At the heart of this vision is a digital-first taxpayer experience, complemented by a strong human touch wherever it is needed," Bisignano wrote in a memo to employees last week. "As part of this shift, we are modernizing how we measure service by sunsetting the legacy customer service representative, telephone-based 'Level of Service' metric with enterprise metrics that reflect new technologies and service channels. These updates will allow us to more accurately capture how the IRS serves taxpayers today. Our goal is to deliver the best possible experience for individuals and institutions while strengthening compliance through the same integrated approach." 

As the IRS is unable to shift its customer service reps seamlessly between answering the phones and processing correspondence, CSRs during the filing season have spent up to 34% of their time simply waiting for the phone to ring, the report says. During the 2023 filing season, that translated to nearly 1.3 million hours of idle time. CSRs closed an average of 1.21 cases per hour in the tax adjustments inventory that year. If the telephone idle time of nearly 1.3 million hours had been allocated to resolving paper inventories, the IRS would have processed and closed more than 1.5 million additional cases.

"It is not practical to eliminate all idle time, but if the IRS set a lower LOS goal, it would get more bang for the buck," Collins said in the report. "[CSRs] would have considerably less idle time and would resolve more taxpayer issues more quickly. In essence, an overly high LOS can create a self-perpetuating cycle: Customer service representatives spend significant time idle rather than resolving underlying account issues, those unresolved issues prompt taxpayers to call repeatedly or submit duplicative correspondence, and the resulting increase in calls and correspondence further strains IRS resources and delays resolution." 

IRS plans to outsource paper tax return processing

While most taxpayers now file their tax returns electronically, about 11 million individuals continue to file on paper each year, and the IRS receives an additional 11 million paper-filed employment tax returns. In April, the IRS launched a "Zero Paper Initiative" to digitize a wide swath of the agency's operations, including return processing. Rather than do the work itself, the IRS entered into contracts with several private companies to scan returns using optical character recognition technology.

The report cautions the IRS "not to put all its eggs in one basket by eliminating or severely reducing the submission processing employees needed to process paper returns before validating technology performance."

While the "Zero Paper Initiative" approach has the potential to reduce processing times for paper returns, the report says it introduces operational and confidentiality risks.

"It was just a few years ago that an employee of an IRS contractor, Charles Littlejohn, stole the return information of thousands of taxpayers and sent it to media outlets," Collins wrote. In the report, she recommended strengthening penalties on contractors if they fail to protect taxpayer return information.

This week, the Treasury Department also penalized Littlejohn's employer, Booz Allen Hamilton, canceling $21 million worth of federal contracts.

Legislative recommendations

The National Taxpayer Advocate's 2026 Purple Book proposes 71 legislative recommendations intended to strengthen taxpayer rights and improve tax administration. Among the recommendations:

1. Authorize the IRS to establish minimum standards for federal tax return preparers and revoke the identification numbers of sanctioned preparers. Numerous studies have found that non-credentialed preparers disproportionately prepare inaccurate returns, causing some taxpayers to overpay their taxes and other taxpayers to underpay, which subjects them to penalties and interest charges. Non-credentialed preparers also drive much of the high improper payment rate attributable to wrongful Earned Income Tax Credit claims.
2. Expand the Tax Court's jurisdiction to hear refund cases. Under current law, taxpayers seeking to challenge an IRS tax due adjustment can file a petition in the U.S. Tax Court, while taxpayers who have paid their tax and are seeking a refund must file suit in a U.S. district court or the U.S. Court of Federal Claims. Litigating in a U.S. district court or the Court of Federal Claims is generally more burdensome — filing fees are more costly, procedural rules are more complex, the judges generally lack tax expertise, and proceeding without a lawyer is difficult and uncommon.
3. Enable Low Income Taxpayer Clinics to assist more taxpayers in controversies with the IRS. LITCs represent low-income taxpayers in controversies with the IRS and inform individuals who speak English as a second language about their rights and responsibilities under the tax law. When the LITC grant program was established in 1998, the law limited annual grants to no more than $100,000 per clinic. The law also imposed a 100% "match" requirement, so a clinic cannot receive more in grants than it raises from other sources. The nature and scope of the LITC Program have evolved considerably since 1998, and those requirements are preventing the program from expanding assistance to a larger universe of eligible taxpayers.
4. Require the IRS to timely process claims for credit or refund. Millions of taxpayers file refund claims with the IRS each year. Yet under current law, there is no requirement that the IRS act on these claims. It may simply ignore them. While the IRS generally does process refund claims, the claims can and sometimes do spend months and even years in administrative limbo.
5. Allow taxpayers to claim the Child Tax Credit and Earned Income Tax Credit for a child who meets all statutory requirements, except having a Social Security number by the due date of the tax return. For taxpayers to claim their children for purposes of the CTC or EITC, their children must have Social Security numbers by the tax return filing deadline, but in a variety of circumstances, taxpayers cannot or do not obtain SSNs for their children in time and lose out on thousands of dollars of tax credits for which they otherwise qualify.
6. Provide consistent and predictable tax relief for victims of federally declared disasters. After a hurricane, flood, wildfire, or other natural disaster has destroyed homes or businesses, Congress often passes legislation to provide tax relief to those affected, but the relief granted varies widely in scope, timing, and form. Similarly situated taxpayers may receive different treatment, and relief, if provided, is often authorized months after a disaster occurs. This ad hoc approach creates uncertainty for disaster victims and their communities.
   

The report also contains a taxpayer rights and service assessment that presents performance measures and other relevant data, a description of TAS's case advocacy and systemic advocacy operations, and a discussion of the 10 federal tax issues most frequently litigated in court last year.