IRS Upheaval Makes Patience and Tech a Tax Pro’s Best Friends

The 2026 filing season could be unlike any in recent memory. Sweeping policy changes, technology mandates, and severe staffing shortages has left the IRS in a state of upheaval. Taxpayers and practitioners should anticipate disruptions and prepare accordingly.

Here are some developments that will shape the upcoming filing season and some practical guidance for navigating them.

Prepare for Digitalization

The IRS began phasing out paper tax refund checks on Sept. 30, 2025. Starting with the 2026 filing season, the agency says it will issue only electronic refunds and require taxpayers to make electronic payments of tax. Guidance is expected before the new filing season.

Most refunds will be delivered by direct deposit or other secure electronic methods. The IRS will offer prepaid debit cards, digital wallets, and limited exceptions where appropriate. For payments to the IRS, taxpayers should continue to use existing payment options until further notice.

Practice point: Tax payments are considered received only when the IRS receives the funds, not when the taxpayer initiates the transfer. This distinction is crucial to avoiding late-payment penalties. Build in processing time, and review client instructions to ensure electronic payment reaches the IRS by applicable deadlines.

Anticipate Slower Service

The IRS lost approximately 25% of its employees in 2025, according to the Treasury Inspector General for Tax Administration. It would need to hire 3,500 new employees just to achieve an 85% level of telephone service during the upcoming filing season.

IRS workforce reductions in information technology have hampered efforts to mitigate staffing losses, such as the zero-paper initiative. These challenges are compounded by the IRS’s responsibility to implement changes from the tax-and-spending package signed into law July 4. This requires editing tax forms and publications and updating computer programming.

Practice point: Expect longer wait times and limited assistance. Use IRS.gov to reduce reliance on limited agency staff. Encourage clients to establish online accounts and familiarize themselves with self-service options.

Guard Against Backlogs

Staffing shortages have resulted in an unprecedented processing backlog. IRS Accounts Management, which handles correspondence, is projected to have an inventory of six million by fiscal year 2026. That would exceed the pandemic-level caseload by nearly two million.

As a result, elections regarding entity classification may not be processed before returns are due. This could lead to rejected filings or erroneous delinquency notices.

Practice point: Verify elections before filing extensions or returns. Maintain documentation and respond quickly to IRS notices. This can prevent unnecessary disputes and penalties.

Use Online Tools

With the IRS backlog exacerbated by the 43-day government shutdown, it is increasingly important for taxpayers to equip themselves to function without IRS assistance.

IRS online accounts remain one of the most effective resources for managing tax obligations without direct IRS intervention. Individual taxpayers, businesses, and tax professionals can establish an account on the IRS website to access transcripts, process power of attorney forms, pay taxes due, view payment history, and check refund status. For businesses, an officer must create an account and designate an official to manage it.

The IRS also offers a document upload tool, or DUT, for submitting documents in response to certain notices. While available only for certain notices, the DUT provides a secure and efficient alternative to mailing paper responses.

Practice point: Establish online accounts before the filing season begins to support smooth access to key functions. For notices that permit electronic submission, use the DUT.

Expect Tech-Driven Enforcement

Enforcement is another function the IRS’s staffing losses have weakened significantly. As of May 2025, the agency had lost more than a quarter of its revenue agents and tax examiners. To compensate, the IRS has shifted toward technology-driven enforcement.

Enhanced data analytics and automated case selection will play a larger role in identifying returns for examination. The Large Business and International Division is actively monitoring productivity measures to ensure examiners prioritize returns that are most likely to yield adjustments. This approach reflects a broader trend—fewer audits overall, but more targeted and potentially more rigorous reviews of high-risk taxpayers.

Practice point: Reduced staffing isn’t reduced scrutiny. Instead, expect a more selective enforcement environment in which technology helps the IRS identify anomalies. Businesses should review their documentation substantiating deductions, credits, and transfer pricing positions, as these areas remain high on the IRS’s radar. Proactive compliance supported by contemporaneous records will be the best safeguard against examinations less reliant on human review.

Strengthen Recordkeeping Now

The IRS has delayed increasing the reporting requirements for Form 6765 until tax year 2026, leaving section G optional for 2025. Public comment on draft instructions is open until March 31, 2026, and the 45-day grace period to perfect refund claims involving the research credit extends to Jan. 10, 2027.

Practice point: Begin tracking research activities at the business-component level now to comply with the future reporting requirements and avoid lost refunds during the extended grace period.

The 2026 filing season will test taxpayers and practitioners with service shortfalls and evolving compliance requirements. Taxpayers and practitioners who act early will be best positioned to navigate these challenges.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author information

Alina Solodchikova is principal and leader of the tax controversy practice in Washington National Tax practice at RSM US.

Sarah Sexton Martinez is a senior manager at RSM US Washington National Tax in Chicago.

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