Taxpayer Advocate Warns of a Rough 2026 as IRS Workforce Shrinks 27%

National Taxpayer Advocate Erin M. Collins delivered her Annual Report to Congress on January 28, 2026, praising the 2025 filing season as strong while warning that 2026 looks materially harder for any taxpayer whose return does not sail through automatically. The report, an independent assessment required by law from the office that represents taxpayers inside the IRS, ties the coming strain directly to a much smaller workforce colliding with a wave of new, often retroactive, tax rules.

What the report found

The IRS workforce fell about 27% over the course of 2025, from roughly 102,000 employees in January to about 74,000 by December, with the cuts falling especially hard on taxpayer-facing customer service staff, down about 21%. That reduction arrives just as the agency has to administer more than 100 provisions from the One, Big, Beautiful Bill Act, many of them retroactive to the 2025 tax year, including new deductions for tips, overtime pay and car loan interest that carry their own eligibility formulas. The report notes that 2025 itself went smoothly, in part because the IRS entered the year with its largest staff in recent memory and no major law changes to implement midseason, a combination it will not have in 2026. The Annual Report to Congress is an independent statutory document; each year it ranks the ten most serious problems taxpayers face and makes recommendations to Congress and the IRS, and Collins has used the format in past years to flag staffing and technology gaps well before they became visible in filing-season statistics.

Who is affected

Most taxpayers who file electronically and owe no follow-up correspondence should see little change. The risk concentrates among filers whose returns require a human being to look at them: households claiming the new OBBBA deductions for the first time, anyone who gets a mismatch notice or identity-verification letter, business owners and investors filing amended returns, and taxpayers already caught up in an identity-theft case. Those categories skew toward higher-income and more complex returns, the ones with K-1s, multiple income sources, cost-basis questions or prior-year corrections that a computer cannot resolve on its own. Business owners and self-employed professionals are also more likely to need an amended return in a year with this many new deduction categories, since a preparer may only later realize a client qualifies for a provision like the car loan interest deduction or the new senior deduction, and correcting that generally means filing the kind of amended return the report says now takes many months to resolve.

The stakes, in numbers

The report also flags that the IRS intends to outsource more paper-return processing to private contractors to cope with reduced staff, a change it says raises its own questions about handling of sensitive taxpayer data.

Moves to discuss with your advisor

Given the backdrop, a CPA or tax preparer may suggest filing electronically as early as practical once the 2026 season opens, keeping documentation for any new OBBBA-related deduction claim especially organized in case of a mismatch letter, and responding to any IRS notice immediately rather than waiting, since cases that require a live review are the ones most exposed to a smaller staff. Households anticipating an amended return, whether from a corrected K-1 or a missed deduction, may want to weigh the realistic multi-month timeline into any planning that depends on that refund arriving on a particular schedule.

What to watch

The 2026 filing season opened not long after this report, so the first hard evidence of whether the warned-of slowdowns materialize, in refund timing, phone wait times and correspondence-audit backlogs, will emerge over the following months. Congress could still act on staffing or funding for the IRS in response to the report's recommendations, which would change the outlook the Advocate described.

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