The IRS Called the 2026 Filing Season a Success. If Your Return Was Complicated, You Felt the Other Half.

If you filed a straight W-2 return this spring, hit "submit," and had your refund by direct deposit a week later, the IRS had a great year. If you had anything more complicated going on — a business return, a multi-state filing, an identity-theft flag, or one of the new federal deductions that wouldn't reconcile — you met a very different agency.

That's not me editorializing. That's the National Taxpayer Advocate's own read. In her FY2027 Objectives Report to Congress, released June 24, 2026, Erin Collins called the 2026 season "largely successful" while documenting a system that worked beautifully for automated returns and poorly for anyone who needed a human. The lesson for my clients is simple: the IRS is now built for the easy case, and most of you are not the easy case.

The headline numbers really are good — for the majority

Give credit where it's due. The IRS processed roughly 139 million individual returns this season despite a 27% workforce reduction and the rollout of more than 100 tax-law changes from the One Big Beautiful Bill Act (OBBBA, P.L. 119-21). About 98% of returns came in electronically, around 65% generated refunds, and about 98% of those refunds went out by direct deposit. For a return that fits the mold, the machine works.

The driver was technology, not staffing. Taxpayers logged into their online accounts something like 121 million times during the season and checked "Where's My Refund?" about 346 million times. When your situation is standard, you no longer need to call anyone — and that is genuinely good government.

Now the other lane

The problem is what happens when your return doesn't fit the mold — and complex returns are exactly where the wheels came off.

Start with the phones. The IRS received 48.1 million calls and answered 9.9 million of them — 21%, down from 25% the prior year. Average hold time climbed to 14 minutes from eight. Walk-in help shrank too: the number of fully staffed Taxpayer Assistance Centers fell to 42, down from 102 the year before. And more than 14 million returns were suspended mid-processing for additional review, with manual-processing inventory up roughly 17% over last year.

Identity theft is the part that should make every business owner pay attention. The average time to resolve an Identity Theft Victim Assistance case hit roughly 600 days in fiscal 2026, with more than half a million cases still open at the close of the season. Collins has called those delays unconscionable, and she's right. If your EIN or SSN gets used on a fraudulent return, you are looking at a two-year wait — and there is no longer a well-staffed phone line to lean on while you wait.

There was also a quiet shift on paper refunds. Under Executive Order 14247, the IRS is pushing hard toward electronic payments, and paper-check refunds dropped sharply this season. Helpful for most people; a real problem for anyone unbanked or working with a trust, estate, or entity that still receives checks.

The OBBBA deductions are where this got personal

Here's where the service gap collided with the new law. OBBBA created a batch of above-the-line deductions — qualified tips, qualified overtime, car-loan interest, and an enhanced senior deduction — claimed on the new Schedule 1-A. Good news on paper. In practice, the IRS couldn't always match what taxpayers claimed against what employers and lenders reported, partly because separate W-2 reporting wasn't even required for 2025 (Notice 2025-62), and final tip regulations didn't land until April 2026.

Translation: a lot of legitimate deductions tripped processing filters. The overtime deduction alone runs up to $12,500 ($25,000 joint) and phases out above $150,000 MAGI ($300,000 joint) under IRC §225; Notice 2025-69 explains how to claim it for 2025. Claim it cleanly and you're fine. Claim it where the employer didn't break out the qualifying amount, and you may be the taxpayer whose refund got suspended — calling a phone line that answers one in five.

The California wrinkle nobody warns you about

This is the part generic national coverage skips. California did not adopt any of it. SB 711 set the state's IRC conformity date to January 1, 2025, which deliberately leaves OBBBA — enacted July 4, 2025 — on the federal side of the line.

So the tip, overtime, car-loan-interest, and senior deductions you took federally get added back on your California return via Schedule CA. Your federal AGI and your California AGI now diverge, and if you didn't plan for that, your CA estimated payments were probably light. This stacks on top of California's existing non-conformity items that hit my business and real estate clients every year: no §199A QBI deduction at the state level, and no bonus depreciation. Two sets of books, two answers — and the FTB has its own service constraints when you need to sort out the difference.

My take

A digital-first IRS is the right direction. A digital-only IRS is a trap, and the 2026 season showed exactly who falls into it: business owners, multi-state filers, identity-theft victims, anyone with a return that needs a human to look at it. Collins made the same point, non-partisan and correct — modernization should narrow the gap between the automated and the manual, not widen it.

I don't expect the staffing to come back. So the practical reality is this: the human who used to be on the other end of the IRS phone line is now, functionally, your CPA. The value of having someone in the books with you year-round isn't that we file faster — it's that when your return falls outside the automated lane, you have someone who can get it right the first time and respond when a notice shows up, instead of you holding for 14 minutes hoping to be the one call in five that gets answered.

One concrete thing to do before the next filing season: if you claimed any OBBBA deduction federally for 2025, confirm your California add-back was handled on Schedule CA and check whether your CA estimated payments need a true-up. A federal-only view of your 2025 return is an incomplete one.

If you want this run against your actual numbers — federal and California both —let's talk. I work with business owners and real estate clients year-round, not once in April.

A note on documents: please don't email tax records or anything with your SSN or EIN on it. Send sensitive files through the secure client portal.

This article is general information, not tax advice, and reading it doesn't create a client relationship. Tax figures cited apply to the 2026 filing season (2025 tax-year returns); verify current-year amounts against IRS, FTB, and EDD primary sources before acting.