As the 2026 tax filing season nears, a series of compounding challenges at the IRS, ranging from funding instability and workforce shortages to leadership turnover, are poised to affect both service delivery and filing timelines. These obstacles will require businesses and individual taxpayers to recalibrate expectations and prepare for potential delays in processing, communication, and resolution.

One of the most persistent issues affecting the IRS is funding. Following a peak in 2010, the agency's budget steadily declined for over a decade before leveling off in FY 2022. Despite mounting operational costs, increased enforcement complexity, and inflationary pressures, funding has not kept pace with IRS needs. Although the Inflation Reduction Act of 2022 allocated $81 billion to the IRS over ten years, a partial rescission of these funds has since forced the agency to delay, scale back, or suspend key modernization efforts, particularly in IT infrastructure and customer service enhancements. The loss of long-term financial security disrupted strategic investments, compelling leadership to reprioritize initiatives midstream.

A more tangible consequence of this financial uncertainty is the continued erosion of the IRS workforce. As of the end of FY 2024, staffing levels had dropped by 23% to 74,200 employees. This reduction is expected to have a significant ripple effect during the 2026 tax filing season. With fewer agents and support staff, delays are likely in return processing, refund issuance, audit response, and taxpayer assistance. For businesses and tax filers that rely on the IRS's responsiveness for tax credits, compliance checks, or the resolution of complex cases, these delays could introduce financial risk, disrupt cash flow, and complicate planning cycles.

Further complicating the situation is the lingering impact of the 43-day government shutdown that occurred during the critical fall preparation window. Nearly half of the agency's workforce, approximately 34,000 employees, was furloughed, interrupting essential activities such as systems testing, staff training, and finalizing new tax law integrations. This period typically marks the time when the IRS updates its IT systems to reflect changes in tax legislation, refines internal protocols, and equips call center representatives with up-to-date guidance. Missing this seasonal ramp-up puts the IRS at risk of being underprepared just as taxpayers begin to file returns. 

With the government operating under a continuing resolution through January 30, 2026, and little likelihood of Congress completing the fiscal year 2026 Financial Services and General Government Bill that funds the Treasury/IRS, there is the possibility of another shutdown at the beginning of tax season. It is uncertain how the IRS’s operations will be impacted, but this could add further disruption to tax season that is already riddled with hurdles.

Leadership instability has added another layer of uncertainty. Over the past 12 months, the IRS has seen seven different Commissioners or Acting Commissioners cycle through its top position. Additionally, the agency is still awaiting Senate confirmation of its Chief Counsel, a crucial role in guiding legal interpretations and implementing new policies. This position is particularly critical as the agency prepares to apply new provisions under the One Big Beautiful Bill, including tax exemptions on tips, the introduction of Trump Accounts, and changes to international tax regulations. While new leaders often bring fresh perspectives and strategic vision, transitions at the top can also cause temporary delays in implementing initiatives and slow the rollout of guidance.

Against this backdrop, the 2026 tax filing season is shaping up to be particularly complex. While the IRS has shown resilience in previous years, the simultaneous convergence of budget cuts, staffing shortages, seasonal preparation gaps, and leadership turnover represents a formidable test of its operational capacity. For tax professionals and filers, proactive planning and patience will be essential as the season unfolds.

As the 2026 tax season nears, a series of compounding challenges at the IRS, ranging from funding instability and workforce shortages to leadership turnover, are poised to affect both service delivery and filing timelines.