IRS staffing cuts delayed paper returns and refunds, report says

Most taxpayers experienced a relatively normal 2026 filing season, but those who relied on paper returns, paper refund checks, or IRS in-person customer service faced longer delays as staffing losses and technology problems slowed agency operations, according to a U.S. Government Accountability Office (GAO) report.

The report, dated July 23 and released Monday, found that the IRS’s individual paper return processing system could not process 2025 tax year returns during the first six weeks of filing season, while a scanning system used for business paper returns was unavailable throughout filing season.

At the same time, the IRS’s submission processing unit ended the filing season with about 8,100 employees, down 18% from a year earlier. The agency lost about 2,900 submission processing employees by the end of fiscal year 2025, primarily through deferred resignation and early retirement programs, the GAO said in the report, 2026 Filing Season: Preliminary Observations on IRS Performance.

IRS officials told the GAO that the loss of experienced IT acquisition staff delayed procurement actions needed for programming updates related to tax law changes and the agency’s transition away from paper refund checks.

As a result, the average processing time for paper individual returns increased to 30 days from 16 days in the 2025 filing season. Business returns also took longer to process. The average processing time for paper Form 941, Employer’s Quarterly Federal Tax Return, rose to 72 days in 2026 from 45 days in 2025 and 25 days in 2024.

To compensate for the system outages, the IRS relied heavily on outside vendors to scan paper returns. The agency sent about 3.7 million business paper returns to vendors for scanning, a 725% increase from the 443,000 sent the previous year.

By the end of filing season, vendors had scanned nearly all of the business paper returns they received and more than four times the number processed by IRS employees.

Despite the paper processing delays, the IRS processed about 98% of the 177 million individual and business returns it received during the filing season, the same percentage as in 2025. Most returns were filed electronically, with taxpayers e-filing 95% of all returns.

The report also found delays in refund issuance as the IRS implemented a 2025 executive order directing agencies to move away from paper checks and toward electronic payments.

IRS officials told the GAO that the agency had sent about 4.2 million notices to taxpayers as of early May requesting direct-deposit information before refunds could be issued electronically. Taxpayers who failed to respond within 30 days would receive a paper check after six weeks.

This caused paper refund issuance to slow considerably. By early April, the number of paper refund checks issued had fallen by more than 80% from a year earlier, while the average time to issue a paper refund increased to 36 days from 13 days in 2025.

The IRS received 24.7 million calls during the filing season, about 3.1 million fewer than in 2025. The GAO said that 41% of the 11.7 million calls answered by the IRS in the 2026 filing season were handled through automation, up from 34% a year earlier.

The agency shifted resources toward handling taxpayer correspondence, reducing its correspondence inventory to 6.8 million cases from 7.6 million at the end of the 2025 filing season.

The IRS served 626,000 taxpayers in person at Taxpayer Assistance Centers during filing season, down from 745,000 in 2025. The number of fully staffed assistance centers fell to 42 from 102 a year earlier, the report said.

The IRS reviewed a draft of the report and provided technical comments that the GAO incorporated as appropriate.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.