The Executive Summary (For Those Who Survived)

Friends, it’s over. The tax season from Hades has finally drawn to a close (for now), and we can all exhale, pour ourselves a generous glass of Barolo, and do a post-mortem on what just happened. Because what just happened was, in the technical parlance of the profession, a lot.

Here’s the deal: The 2026 filing season — covering tax year 2025 — was simultaneously one of the most consequential and most chaotic in recent memory. You had the One Big Beautiful Bill Act (OBBB/OBBBA) signed on July 4, 2025, with retroactive provisions dropping into the 2025 tax year like a piano falling out of a window. You had an IRS that lost 27% of its workforce and had five acting commissioners or commissioners in the first four months of 2025 — a leadership carousel that would make even Game of Thrones blush. And you had practitioners trying to translate all of it to clients who had questions and nowhere to turn because, well, nobody was answering the phone.

Let’s break it down.

Act I: The IRS — “Outstanding Service” (Depending on Your Definition of Outstanding)

The Staffing Apocalypse

Let’s start with the elephant in the room, or rather, the 26,000-employee-shaped hole in the room. By the time the 2026 filing season opened in late January, the IRS had shed more than 26,000 employees, roughly 27% of its entire workforce, through DOGE-driven layoffs, voluntary separation incentives, and early retirements. Most of those losses were in the taxpayer services division, which lost about 20% of its own staff. That’s the division responsible for, you know, actually helping people file their taxes and answering phones. You literally can’t make this stuff up.

The National Taxpayer Advocate, Erin Collins, who is rapidly becoming the tax world’s version of Cassandra, warned Congress in plain language: “The IRS is simultaneously confronting a reduction of 27% of its workforce, leadership turnover, and the implementation of extensive and complex tax law changes.” That’s the official government version of “hold onto your hats.”

The workforce shrank back to roughly October 2021 levels. Right back to where they were before the Inflation Reduction Act investments. The IRS’s own internal December 2025 analysis confirmed that agency managers flagged two biggest risks to a successful filing season: staffing gaps and challenges implementing OBBB. Two for two. Nailed it.

The “Perfect Staffing” Comedy Tour

And yet — and this is where you need the Grappa, trust me — IRS Chief Executive Officer Frank Bisignano stood before the House Ways and Means Committee on March 4 and said, “We feel really good about the staffing levels.” He told reporters wait times on the phone were “single digits.”

Meanwhile, a government watchdog draft report quietly noted that taxpayers were spending about eight minutes on the phone with IRS agents — roughly twice as long as the previous year. The inspector general further found that the taxpayer services division had hired just 50 employees in anticipation of the 2026 filing season. That’s 2% of its authorized level. FIFTY. As in, five-zero. For the entire division that processes original returns and handles customer service.

To backfill the gaping operational holes, the IRS reassigned about 1,500 HR and IT workers to help process tax returns. The catch? These employees were still in the middle of a 12-week training program that wouldn’t end until after April 15. So during peak filing season, the IRS was being staffed by HR and IT folks still learning what a Form 1040 looks like. Santa Maria.

The Service Level Shell Game

To add a delightful layer of institutional candor, the IRS quietly lowered its level-of-service (LOS) goal from 85% of calls answered in 2025 down to 70% in 2026, so they could technically “hit their target” while helping fewer people. A+ for creative performance metric management. (We should all try this strategy with our clients: “Sure, I said I’d file your return on time, but I’ve adjusted my definition of ‘on time’ downward, so we’re good.”)

That 70% figure is also somewhat fictional. The reported LOS only covers 33 account management lines, roughly two-thirds of calls. Enterprise-wide, the actual level of service was significantly lower. For context, compliance-related phone lines averaged wait times of 17 to 19 minutes even in the 2024 season. In 2026, with fewer people and more complex law? Use your imagination.

Backlogs: The Never-Ending Story

If you or your clients needed anything involving paper — amended returns, correspondence, or identity theft resolution — welcome to purgatory. As of December 2025, key inventory levels were 129% higher than pre-pandemic levels . Identity theft refund cases, where IRS flagging incorrectly traps legitimate taxpayer refunds, were still at roughly 387,000 unresolved cases from the 2025 filing season alone. According to the IRS Advisory Council, identity theft refund cases now take nearly two years to resolve . Two years. People have had children and sent them to preschool in less time than it takes the IRS to resolve an ID theft case.

The paper check phaseout — mandated by executive order — added yet another layer of dysfunction. Over 1.4 million CP53E notices went out to taxpayers, telling them they needed to provide banking information or wait six weeks for a paper check that wasn’t coming the traditional way. Lawmakers from both parties wrote urgent letters to Treasury Secretary Scott Bessent expressing concern that working families depending on refunds were getting notices instead of money.

And Direct File? Gone. Eliminated November 2025. The free government filing program that 300,000 taxpayers had used and given high marks was killed off under Section 70607 of the OBBB, replaced with a $15 million task force to study alternatives. Because nothing says “we’re simplifying your life” like first taking away your free filing tool and then spending $15 million studying whether to give it back.

Act II: The One Big Beautiful Bill — A Love Letter to Complexity

Congress Signed It on July 4th. Tax Practitioners Signed Their Crisis Intervention Papers on July 5th.

The OBBB was signed into law on July 4, 2025, Independence Day. Apparently including independence from simple tax returns. The bill makes numerous TCJA provisions permanent while adding a buffet of new deductions, many of which were retroactively effective from January 1, 2025 . That means the IRS had roughly six months to update forms, write guidance, train its (rapidly disappearing) workforce, and communicate new rules to practitioners and taxpayers. And let’s not forget government shutdowns. Piece of cake, right?

Here’s a partial menu of what practitioners had to navigate for tax year 2025:

• No Tax on Tips — A deduction of up to $25,000 for qualified tip income for eligible workers, with phase-outs beginning at $150,000 MAGI ($300,000 joint), available only to people in occupations the IRS designated as tip-eligible as of December 31, 2024.
• No Tax on Overtime — A deduction for the “half” in “time-and-a-half” (not the full overtime rate — just the premium portion), capped at $12,500 single / $25,000 joint, same phase-out rules as tips.
• New $6,000 Senior Deduction — A new above-the-line deduction for taxpayers 65 and older, phasing out between $75,000–$175,000 (single) and $150,000–$250,000 (joint).
• SALT Cap Raised to $40,000 — Up from the TCJA’s hated $10,000 limit, increasing 1% annually, affecting millions of high-income itemizers in high-tax states.
• Enhanced Standard Deduction — $15,750 single / $31,500 married filing jointly for 2025, with an extra 5% inflation bump on top of the regular adjustment.
• Enhanced Child Tax Credit — Increased to $2,200.
• Business Interest Expense Liberalized — ATI definition reverted to EBITDA-based for 2025 and beyond, increasing allowable deductions for pass-throughs and C corps.

Now here’s the beautiful part: Congress passed this on July 4th , which meant the IRS had to scramble to update Form 1040, schedules, and instructions — all of it — while simultaneously operating with 27% fewer employees and no long-term modernization plan. The GAO politely noted in March 2026 that the IRS pushed out “many of the employees whose expertise would be necessary to implement such artificial intelligence technology” — the very technology they were counting on to make up for the human deficit. Perfetto!

The Tips and Overtime Deduction: A Masterclass in Ambiguity

Let’s dwell for a moment on the tips and overtime deductions, because these deserve a standing ovation for complexity per line of legislation. The overtime deduction? It’s not on the full overtime pay. It’s only on the premium portion — the “half” of time-and-a-half. Try explaining that calculation to a client who got their W-2 from an employer who didn’t separately break out the FLSA premium from base overtime wages. Because here’s the fun part: for 2025, the IRS provided “transitional relief” allowing employers to approximate overtime on W-2s. The Joint Committee on Taxation estimated the overtime deduction would cost $89.6 billion through 2029 — and $32.8 billion in 2026 alone.

Analysts noted that the complexity of these new deductions, combined with reduced IRS assistance, likely means “many filers are either taking deductions they don’t qualify for, or aren’t taking deductions that they do qualify for because they don’t understand them.” Both outcomes are bad. One creates future audit risk; the other means leaving money on the table. That’s a practitioner’s worst nightmare: your clients either overpaid or are sitting on an audit timebomb, and the IRS doesn’t have enough staff to tell you which one.

The IRS.gov visit count surged 57.6% during this filing season compared to the same period last year — from 296 million visits to 467 million visits. Taxpayers and practitioners were furiously refreshing IRS.gov trying to figure out the rules because they couldn’t reach anyone on the phone. Let’s call that what it is: the IRS outsourcing its taxpayer assistance function to its own website.

Act III: Practitioners — The Heroes Nobody’s Toasting

What It Was Actually Like in the Trenches

Friends, let me tell you what this season looked like from inside a tax practice. The AICPA had already flagged the top three challenges practitioners anticipated going into filing season: IRS communication delays, workload compression, and managing client expectations. All three came true simultaneously and in spectacular fashion.

The compressed filing season window — essentially January through April 15 with limited extension breathing room — creates a structural crisis every year. In 2026, that crisis got turbo-charged. You had:

• Late guidance on OBBB provisions, with some subregulatory guidance arriving so late in 2025 that software updates lagged behind.
• Employer reporting chaos on tips and overtime — W-2s that weren’t updated, incomplete designations, and “approximations” that required reverse-engineering.
• Phone wait times that made calling the IRS a strategic calculation rather than a routine step. The Practitioner Priority Service — theoretically the practitioner hotline — has been a source of frustration, with prior surveys showing wait times of up to 90 days for substantive responses.
• Identity theft cases requiring manual intervention piling up while the IRS processed them at a two-year average cadence.
• Amended return backlogs ballooning as key inventories hit 129% above pre-pandemic levels.

The Refund Data: Good News Buried in Bad News

Here’s the genuinely interesting data point in all of this: refunds are UP significantly. As of April 10, 2026, the IRS had issued $265.2 billion in total refunds, up 16% from $228.7 billion at the same point last year. The average refund hit $3,397 — up 11.2% year-over-year. By mid-March, the average refund was running as high as $3,571 to $3,623. The OBBB provisions worked as advertised for taxpayers who could navigate them correctly.

But notice the other data point: total returns received were down 2.8% versus the prior year, and tax professional e-filings were down 2.3%. Whether that’s complexity-driven hesitation, extensions being filed at higher rates, or the downstream effect of fewer people understanding the new law. We’ll know more when the final season data comes in. The IRS was targeting roughly 164 million returns.

Over 98% of returns were filed electronically and over 80% of refunds were issued in under 21 days for straightforward returns. So the machine largely worked. The problem, as always, was the exceptions — and the exceptions this year were exceptionally numerous.

Our specific experience is that we filed more extension than ever this year. Some were defensive to combat IRS issues, but others were due to trying to navigate all the change. While I think we performed extremely well under the circumstances, client frustration was much higher than in prior years with this frustration pointed mostly at the practitioner and not the IRS woes causing the delays and practitioner resource consumption.

Act IV: Lessons Learned (And What You Need to Do Now)

What This Season Taught Us

1. Retroactive legislation is a practitioner’s nemesis. When Congress signs major tax legislation on July 4th with January 1st effective dates, the entire profession gets compressed into a six-month education, guidance-issuance, and software-update cycle. The OBBB was consequential and positive for taxpayers in many ways but the delivery mechanism was brutal. Start planning NOW for potential technical corrections and additional guidance that will trickle out through 2026.
2. The IRS staffing problem is structural, not temporary. The IRS is currently operating at 2021 workforce levels while processing returns for a significantly more complex tax environment. The GAO warned in March that staffing reductions “were not targeted or strategic.” There is no cavalry coming. The agency’s FY2027 budget justification calls for shedding an additional net 4,000 staffers . Plan your client service model around an IRS that is not going to pick up the phone in a timely manner — or quite possibly at all.
3. New deductions require new documentation protocols. The tips and overtime deductions require substantiation: employer records, W-2 designations, tip logs, and FLSA classification verification. If your clients took these deductions and can’t document them, that’s a future audit problem. Build the documentation checklist into your engagement workflow now, not after you get the IRS letter.
4. The SALT expansion changes the itemizing calculus. With the SALT cap at $40,000 for 2025, many clients who had been using the standard deduction under the TCJA-era $10,000 cap may now find itemizing advantageous, especially in high-tax states. Review every client with significant state income tax or property tax exposure.
5. Extensions are not extensions of your sanity. With IRS processing slower, amended return backlogs at 129% above pre-pandemic levels, and identity theft cases averaging two years for resolution, the cost of any return problem in 2026 is dramatically higher than in prior years. Accuracy over speed. Every. Single. Time.

Your Action Items for the Rest of 2026

• Review all OBBB provisions for year-end planning opportunities. Business interest expense, depreciation changes, QSBS expansions, SALT changes. These are planning opportunities, not just compliance line items.
• Client communication on tips/overtime documentation — if they took the deduction, do they have the support? Now is the time to check.
• Identity protection — with employment/wage identity theft up 61% over 2021, every client should have an Identity Protection PIN (IP PIN) from the IRS.
• Estimated tax adjustments — the new deductions affected withholding for 2025. Make sure 2026 estimated tax payments are recalibrated for the full-year impact of OBBB.
• W-4 updates — with new above-the-line deductions in play, many clients are under- or over-withheld.

The Bottom Line

The 2026 tax season will go down in the books as one of the most structurally chaotic in modern history, not because taxpayers were unruly or the law was inherently bad, but because you had major retroactive legislation, a severely depleted IRS workforce, incomplete employer reporting systems, and late guidance all landing on practitioners simultaneously during the busiest 100 days of the professional calendar.

The refunds are bigger. The deductions are real. The opportunities are genuine. But navigating them required a level of expertise, patience, and frankly, sheer stubbornness that only experienced tax professionals possess. The DIY-filer who tried to claim the overtime deduction without understanding FLSA premium pay definitions? Good luck in the audit lottery. The taxpayer who waited for an IRS callback on an identity theft case? See you in approximately two years.

As I always say: Tax planning delivers big value. It’s wealth preservation, not an expense. This season proved that more than ever because the difference between a practitioner who understood OBBB and one who didn’t wasn’t a matter of $200. It was the difference between capturing real, significant tax benefits and leaving thousands of dollars on the table in a year when the law was designed to deliver those benefits.

The tax code has been rewritten. The IRS is understaffed. The guidance is still arriving. And your advisor matters more right now than at any point in the last 40 years.

Have questions about how OBBB provisions apply to your specific situation? Don’t wait for the IRS to call you back (narrator: they won’t). Reach out to our team at [email protected]. We’d love to talk strategy!

Ciao, Ragazzi!