The U.S. Government Accountability Office used the second day of the PayrollOrg’s Capital Summit to outline how ongoing workforce disruption, legacy systems, and emergency tax programs have strained IRS operations, with downstream effects for employers and payroll professionals.
During the session “Government Research on Tax Accountability,” Dawn Bidne, Senior Analyst, and Erin Saunders‑Rath, Ph.D., Assistant Director in GAO’s Strategic Issues team, walked attendees through recent GAO findings on IRS filing season performance, information reporting, and the employee retention credit (ERC).
“We’re often called the congressional watchdog,” Bidne said. “We investigate how the federal government spends taxpayer dollars by providing Congress with timely information that is objective, fact‑based, nonpartisan, non‑ideological, fair, and balanced.”
Filing Season Performance Under Pressure
The GAO’s most recent filing season review—released just ahead of the Capital Summit—examined how well the IRS processed returns, issued refunds, and delivered customer service during 2025.
While the IRS met many of its service targets, challenges remain. Bidne noted that the IRS answered approximately 9 million taxpayer calls last year, with an average wait time of just over three minutes, achieving its goal of an 87% level of service.
However, correspondence delays persisted. “At the end of the filing season, there were 7.6 million pieces of correspondence, 64% of which were late,” Bidne said. By contrast, pre‑pandemic levels typically hovered around 2 million items.
The problem the GAO found stems partly from staffing constraints. Customer service representatives split duties between answering phones and handling correspondence. “They can’t do two tasks at once,” Bidne said, explaining that nearly 950,000 hours were spent waiting for phone calls—time that otherwise could have been used to reduce the correspondence backlog.
GAO recommended that IRS develop a comprehensive plan to address the growing inventory.
The GAO’s 2025 tax filing report noting reforms and planning to address IRS operational risks was published on March 16, 2026.
Leadership Turnover and Workforce Losses
IRS operational challenges were compounded by significant workforce and leadership disruption throughout 2025.
Bidne said IRS experienced “seven different commissioners between January and August of last year,” with additional uncertainty created by hiring freezes, reductions in force, and a deferred resignation program.
More than 26,000 IRS staff separated across the agency, including over 17,000 employees through deferred resignation and early retirement, disproportionately affecting filing season personnel. “Those are generally what we refer to as filing season staff,” Bidne said.
The departures left IRS without an updated workforce plan at a critical moment. GAO recommended that IRS establish an implementation team to manage reform efforts and draw from earlier workforce planning rather than starting from scratch.
Modernization Remains a High‑Risk Area
GAO also reiterated longstanding concerns about IRS technology modernization. Despite spending $1.5 billion in fiscal year 2024, IRS continues to rely on some of the oldest systems in government.
“We’ve reported a lot on this,” Bidne said, noting persistent issues with delays, funding uncertainty, and reprioritization. GAO recently flagged weaknesses in safeguarding taxpayer data, inventorying systems that process sensitive information, and managing cloud‑based IT investments.
For payroll professionals, these shortcomings can affect processing speed, data availability, and IRS responsiveness during filing season and compliance initiatives.
Information Reporting: Growing Volume, Growing Burdens
Shifting to information returns, Saunders‑Rath discussed GAO findings on IRS preparedness for expanding reporting requirements.
In 2022, IRS received more than 5.4 billion information returns, with Form 1099‑B transactions accounting for the bulk. At one point, IRS estimated that digital asset reporting on Form 1099‑DA could more than double total information returns.
“Information returns are filed by third parties such as banks and employers,” Saunders‑Rath said, pointing to Forms 1099 as familiar examples.
While information reporting supports fraud detection and reduces the tax gap, GAO found it also imposes burdens on filers and the IRS itself. External stakeholders told GAO that IRS “understood the reporting requirements much more than everyone else,” highlighting the need for clearer outreach and education.
GAO recommended that IRS apply lessons learned from prior rollouts and evaluate whether its communications are actually reducing confusion.
Lessons From the Employee Retention Credit
Saunders‑Rath also summarized GAO’s February report on the employee retention credit, which found that while the IRS acted quickly to deliver pandemic relief, it was less prepared to manage improper payment risk.
“The IRS moved quickly to administer ERC,” she said, “but was less prepared to assess improper payment risk and process a surge in claims.”
By June 2025, the IRS had processed nearly 5 million ERC claims totaling more than $280 billion, many submitted on amended returns that required manual processing. The GAO identified design choices—such as subjective eligibility criteria and retroactive changes—that increased complexity and compliance risk.
The GAO urged the IRS to apply these lessons to future emergency tax programs, particularly those administered through the employment tax system.
How GAO Recommendations Translate Into Action
During a question‑and‑answer session, Bidne and Saunders‑Rath explained how GAO tracks whether agencies implement recommendations.
“We do track our recommendation status,” Saunders‑Rath said. Even when agencies disagree initially, GAO continues follow‑ups annually and may close recommendations later if actions align with GAO’s intent.
Bidne added that while the GAO audits the IRS, “we have a very good working relationship with the agency,” supported by established protocols and ongoing engagement.
Payroll Takeaway: What GAO Findings Signal
- IRS staffing matters. Workforce losses affect filing seasons, correspondence delays, and service quality.
- Modernization gaps persist. Legacy systems continue to pose risks for processing and data security.
- Information reporting will expand. Employers may face growing reporting volume and complexity.
- Emergency tax programs carry risk. ERC lessons highlight the need for clearer eligibility and data capture.
- GAO oversight influences change. Watchdog findings often shape future IRS priorities and legislation.
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