Less capacity, more obligation.
By CPA Trendlines Research
Identity theft is becoming one of the biggest time drains for tax professionals this filing season, and the IRS may be less equipped than ever to handle it.
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According to the IRS Advisory Council—the body representing tax professionals—identity-theft refund cases now take nearly two years to resolve, as staffing cuts and system limits slow IRS response.
But identity theft is only one of a long list of problems that can only get worse this year. Tax professionals are bracing for prolonged client disputes and frustrating follow-ups with an understaffed, ill-equipped IRS.
The latest report from the IRS Advisory Council, largely a panel of tax practitioners, warns that the Internal Revenue Service is entering the 2026 filing season with far fewer employees, stalled modernization, and a growing risk that routine errors will take longer to fix—or may not be fixed at all.
Key numbers at a glance
Issue |
Number |
IRS workforce reduction |
More than 25% |
IT staff departures |
2,000+ |
Form 730 excise taxes misclassified |
$500+ million |
Identity-theft refund resolution time |
676 days |
Gross tax gap |
$696 billion |
Americans affected by identity theft |
20+ million |
Average identity-theft refund resolution |
676 days |
Prior-year resolution time |
556 days |
Excise tax hotline status |
Unanswered |
Accounts management staffing cuts |
Significant |
New tax law changes |
100+ |
Strategic Operating Plan |
Paused |
Accounts management staffing |
Significant cuts |
The IRS collects roughly 96% of the revenue that funds the federal government’s operations. During fiscal year 2024, the agency collected $5.1 trillion in revenue using an appropriated budget of $12.3 billion—an ROI of 415:1, a figure National Taxpayer Advocate Erin Collins has highlighted as unusually high for a federal agency.
After Congress provided an $80 billion infusion of funding through the Inflation Reduction Act, more than half of that funding has since been rescinded. The resulting cuts have crippled the IRS’s ability to deliver the improvements outlined in the agency’s Strategic Operating Plan. So the plan has been shelved, killing the modernization projects intended to reduce paper, automate workflows, and improve service—exactly the levers that shrink inventories and speed fixes.
Overall, the IRS has lost more than 25% of its workforce. The council also reports the departure of more than 2,000 IT workers since January 2025—at the same time the IRS is expected to update systems, change forms, and implement new tax law.
Why IRS mistakes may be harder to unwind in 2026
For taxpayers, IRS mistakes are rarely minor. A misapplied payment can trigger penalties and interest. An incorrect refund can later be clawed back. A missing adjustment can lead to notices, audits, and months of back-and-forth. For CPAs, these errors often become time-consuming cleanup work, even when the original filing was accurate.
Those staffing losses matter most in the parts of the IRS responsible for fixing problems after returns are filed. Accounts management units handle payment corrections, penalty abatements, refund issues, and correspondence. When those units are short-staffed, mistakes sit longer—and the burden shifts to taxpayers and their advisers.
For example, the IRS has misclassified more than $500 million in properly paid Form 730 excise taxes as overpayments since 2020. In some cases, the IRS issued large refunds that taxpayers did not deserve. In others, the misclassified amounts were offset against unrelated tax liabilities.
The lesson of Form 730
The consequences came later. When the IRS eventually corrected the errors, taxpayers faced demands to repay the amounts, often with penalties and interest. IRSAC noted that affected businesses incurred tens of thousands of dollars in professional fees trying to unwind mistakes they did not cause.
Making matters worse, taxpayers and CPAs often had no way to resolve the issue quickly. Since late May 2025, the IRS excise tax hotline has gone unanswered. Callers hear a recording stating the line is “not currently being answered due to staffing limitations.” Other IRS phone lines decline to handle excise issues, leaving affected taxpayers without live assistance.
While the Form 730 issue is specific, IRSAC treats it as a symptom of a larger problem. When staffing falls, and systems are not modernized, even simple corrections can take months or years. Errors accumulate faster than the agency can resolve them.
676 days to a solution
The council’s warning is supported by oversight data. The Treasury Inspector General for Tax Administration has reported that IRS staffing fell by roughly 25 percent between early and mid-2025. Key functions tied to filing season follow-up—submission processing, accounts management, and information technology—have lost significant numbers of experienced employees.
Technology losses compound the problem. Updating IRS systems to automatically catch and correct errors requires specialized staff. With more than 2,000 IT employees gone, system fixes may be delayed or scaled back, increasing reliance on manual reviews.
Identity theft adds another layer of strain. IRSAC reported that identity theft now affects more than 20 million Americans each year. When identity theft is involved, refunds are often frozen, and accounts are flagged for review. According to the National Taxpayer Advocate, the average time to resolve identity-theft-related refund claims rose to 676 days in fiscal year 2024.
Tax gap now $600 billion
For CPAs, these delays often translate into months of client frustration. Even when the IRS eventually agrees an error occurred, the time required to correct the account can stretch across multiple tax years, complicating planning and compliance.
Unclear guidance can turn small problems into larger ones. When taxpayers do not report identity theft early, information return mismatches may trigger automated notices. Clearing those notices requires additional correspondence, adding to backlogs and further delaying resolution.
The broader backdrop is the scale of IRS workload. IRSAC cited IRS estimates showing a gross tax gap of $696 billion for tax year 2022, with $606 billion remaining unpaid after enforcement. At the same time, Congress continues to debate funding reductions for the agency.
Cleaning up the mess
From the council’s perspective, this creates a mismatch between expectations and capacity. The IRS is expected to collect hundreds of billions in legally owed tax, implement more than 100 tax law changes enacted in 2025, and provide timely service—while operating with far fewer people to do the work.
For accountants heading into the 2026 filing season, IRS mistakes may take longer to correct. Refund delays may be more common. Penalties tied to IRS errors may require extended follow-up to remove. Even routine fixes could involve months of waiting.
IRSAC does not predict a breakdown of the tax system. But its report makes clear that the margin for error is thinner. When mistakes occur, there may be fewer trained employees available to find them, explain them, and fix them promptly.
In that environment, practitioners may find themselves spending more time documenting filings, managing client expectations, and navigating a slower correction process—work driven not by client error, but by the IRS’s reduced capacity to clean up its own.
Identity theft: two-year resolution timelines are now in the baseline
Identity theft has become one of the IRS’s most stubborn problems. With fewer employees available to handle cases, identity theft delays are likely to worsen just as filing season demands increase.
“Identity theft now impacts more than 20 million Americans per year,” IRSAC says, underscoring the scale of the problem. When tax-related identity theft occurs, refunds are often frozen and taxpayer accounts flagged, sometimes for years.
The average time to resolve identity-theft-related refund claims rose to 676 days in fiscal year 2024, up from 556 days the year before. That leaves many taxpayers waiting up to two years to receive refunds they are legally owed.
Form 14039, the Identity Theft Affidavit.
For CPAs, these delays translate into constant client follow-up. Taxpayers want to know why refunds are missing, what additional steps are required, and when the issue will be resolved. In many cases, the only answer is that the return is stuck in an IRS backlog.
Identity theft problems do not stop with frozen refunds. When identity theft is not reported early, stolen Social Security numbers may be used to generate false information returns. Those returns can later trigger automated IRS notices accusing taxpayers of underreporting income.
“When identity theft is not timely reported, the IRS may have no way of knowing that reported income is fraudulent,” IRSAC cautioned. As a result, automated systems move forward, and identity theft victims are forced to prove that the income reported under their name was never earned.
Consider Form 14039, the Identity Theft Affidavit. Public guidance can lead taxpayers to believe the form applies only to tax-related identity theft, even though internal IRS procedures allow broader use. “This confusion can delay case resolution and increase taxpayer burden,” the council wrote.
Complicating planning and straining client relationships
Staffing shortages slow resolution at every step. “Fewer employees are available to review affidavits, adjust accounts, and respond to taxpayers,” IRSAC warned. Cases that once might have been resolved in months now stretch into years.
The council also pointed to the growing sophistication of fraud. “Advances in artificial intelligence are empowering criminals,” IRSAC wrote, allowing identity theft schemes to scale faster than before.
Oversight findings support the council’s concerns. The Treasury Inspector General for Tax Administration has reported significant staffing losses in accounts management and return processing—the same units responsible for clearing identity theft cases.
For practitioners, identity theft work is often unpaid. Practitioners track missing refunds, respond to notices, and calm frustrated clients while waiting on IRS action. These cases can span multiple filing seasons, complicating planning and straining client relationships.
Delays, delays, delays
Looking ahead to the 2026 filing season, IRSAC’s warning is clear. With fewer staff and rising volumes of identity theft, cases are likely to take longer to resolve. Refund delays may increase, and follow-up notices may become more common.
The council does not predict a collapse of the system. But it cautions that the IRS has far less capacity to absorb delays and surges in identity theft cases. When fraud hits, CPAs may again find themselves acting as advocates and intermediaries because the IRS cannot keep pace.
The phone line problem: when specialized help goes dark
Phone access to the IRS is one of the clearest signals taxpayers and CPAs have of how well the agency is functioning. In its January 2026 report, the IRS Advisory Council warns that those signals are flashing red again as staffing losses and rising demand collide heading into the 2026 filing season.
“Taxpayers and practitioners rely on timely access to IRS phone assistance to resolve issues,” IRSAC says. But with fewer employees available to answer calls, the council warns that phone service problems are already spreading beyond isolated cases.
IRSAC’s concern comes despite improvements during the 2025 filing season. The council acknowledged that phone wait times were shorter and more calls were answered last year. “The 2025 filing season was hailed as a success,” IRSAC notes.
Punished for progress
That progress, however, rested on staffing levels and investments that no longer exist. “Overall, the IRS has lost more than 25% of its workforce,” IRSAC reported, reducing the pool of trained phone assistors.
The Treasury Inspector General for Tax Administration has reported significant staffing losses in accounts management, the IRS function most closely tied to phone and correspondence support.
When phone access breaks down, work does not disappear—it shifts. Taxpayers turn to practitioners for answers the IRS cannot provide, increasing call volume to firms and stretching staff time.
Delayed phone access also slows case resolution. Without live assistance, taxpayers often resort to written correspondence, which can take months to process. By the time responses arrive, penalties and interest may have continued to accrue.
Phone access problems also undermine trust. When taxpayers cannot reach the IRS, confusion grows about next steps, deadlines, and documentation requirements.
Call volumes spike
Looking ahead to the 2026 filing season, the council cautions that call volumes typically spike in January and February. With fewer employees available, wait times could increase sharply, and some lines may become unreachable.
The risk extends beyond phone calls. IRSAC noted that digital tools, while helpful, do not replace live assistance for complex issues. “Many taxpayer issues cannot be resolved without speaking to an IRS employee,” the council notes.
The council does not predict a total collapse of IRS phone service. But it does warn that staffing losses leave little cushion when demand rises. When phone lines go unanswered, the filing season becomes harder for taxpayers and CPAs alike.
More tax law, fewer people: why guidance may lag
In addition, the IRS is facing a difficult imbalance: it must explain and implement major new tax laws with far fewer employees available to do the work. For CPAs, that imbalance raises the risk of late guidance, unclear instructions, and last-minute changes during the 2026 filing season.
The challenge begins with the scale of recent law changes. The One Big Beautiful Bill Act includes more than 100 tax law changes. Many apply to returns that will be filed in 2026, meaning the IRS must issue guidance, revise forms, and update computer systems on a tight timeline. That work includes writing regulations and notices, updating instructions, training employees, and coordinating with software providers and tax professionals.
At the same time, the agency’s workforce has shrunk dramatically. “Overall, the IRS has lost more than 25% of its workforce,” the council says. That reduction includes policy specialists, attorneys, and information technology staff who play central roles in drafting and delivering guidance.
The growing tech gaps
Technology losses are particularly damaging. Updating IRS systems to reflect new law is not optional. Without those updates, returns cannot be processed correctly.
Fewer staff means guidance may arrive later than normal. When instructions are delayed, tax preparers are left to interpret the law without clear direction, increasing the risk of inconsistent treatment and later corrections.
For professionals, delayed guidance often means rework. Returns may need to be amended after final instructions are issued. Clients may receive conflicting advice early in the season. In some cases, penalties and interest may accrue when taxpayers follow reasonable interpretations later overturned by the courts. When resources are limited, the IRS may prioritize some provisions over others, leaving gaps that persist through filing season.
The broader backdrop is pressure on the IRS to deliver certainty while operating with reduced capacity. Meanwhile, Congress continues to debate further funding reductions even as expectations for compliance and service remain high.
Prepare for uncertainty
For the 2026 filing season, the council urged policymakers and practitioners to prepare for uncertainty. Late-breaking guidance, last-minute form changes, and delayed system updates could complicate planning for both taxpayers and tax pros.
For tax professionals, the practical response may include closer monitoring of IRS releases, clear client communication about uncertainty, and caution around aggressive positions taken before guidance is final.
As IRSAC’s report makes clear, the problem is not a lack of law. It is a lack of people to explain it.
The quiet risk: backlogs that roll forward
Not all filing season risks arrive with headlines. Some build quietly over time. The IRS Advisory Council warns that unresolved IRS backlogs from prior years are likely to carry forward into the 2026 filing season, increasing delays and follow-up work for taxpayers and CPAs.
Backlogs form when returns, correspondence, or account issues are not resolved promptly. Each unresolved case becomes part of the next year’s workload. When staffing falls, these inventories can grow faster than the IRS can work them down. Payment misapplications, amended returns, penalty abatement requests, and notice responses can all linger when staffing is thin. Each delay increases the chance that penalties and interest continue to accrue.
Modernization projects were designed to reduce paper, automate workflows, and shrink backlogs. With those efforts slowed or halted, existing inventories are harder to clear. Staffing cuts hit accounts management particularly hard. Those teams handle correspondence and account adjustments that often sit at the heart of IRS backlogs.
The backlogs no one sees
For the tax pro, backlog rollovers are often invisible until they cause trouble. A notice tied to a prior-year issue may surface during filing season, forcing last-minute work on problems that should have been resolved months earlier.
Clients are often surprised when old issues resurface. They expect each tax year to close cleanly. When unresolved IRS cases reappear, the tax pro must explain delays that stem from IRS capacity, not client error. Delayed cases generate follow-up notices, which create additional correspondence, further increasing inventory when staffing is insufficient.
Looking ahead to the 2026 filing season, IRSAC urges awareness rather than alarm. Backlogs may not dominate headlines, but they can quietly slow refunds, delay notices, and consume time that CPAs would otherwise spend on planning and advisory work.
For tax professionals, preparation may include earlier follow-up on unresolved cases, clear documentation of prior correspondence, and realistic client expectations about timing.
As IRSAC’s report makes clear, the risk is not just what happens in 2026. It is what remains unfinished from earlier years—and how fewer IRS employees are expected to carry it forward.