Each tax season is a reminder of how much the U.S. economy depends on stable tax administration. For most taxpayers, the IRS is associated with filing deadlines, refunds, or customer service. But for businesses, the IRS represents something broader: a critical part of the nation’s financial infrastructure that supports withholding, return reporting, fraud prevention, and cross-market compliance certainty.
Recent warnings from the Treasury Inspector General for Tax Administration (TIGTA) raise an important operational question, one that should be considered beyond politics or policy debates: What happens when the capacity of the tax administrator becomes uncertain during a period of rising complexity?
Working with both the IRS and large filers, the greatest risk is not tied to any single initiative: The risk is variability, especially at a time when the IRS is managing both modernization efforts and expanding reporting demands.
Tax administration runs on predictability
Tax administration cannot be scaled up or down quickly without consequences. The IRS operates one of the largest data-processing environments in the world, managing billions of returns, complex validation processes, and tight filing-season timelines.
To put that scale in perspective, in the most recent tax year, the IRS processed more than 5 billion information returns, over 165 million individual income tax returns, and issued more than 104 million taxpayer refunds. Even at the IRS’s scale, modest backlogs quickly become a significant disruption.
Businesses build their compliance operations around predictable systems, published specifications, and consistent processing cycles. When resourcing becomes unstable, businesses do not experience it as an abstract budget issue. They experience it as delayed guidance, slower processing timelines, increased filing friction, and longer resolution cycles for notices and mismatches.
TIGTA’s most recent filing season readiness memorandum underscores these pressures. The document notes that inventories of unprocessed workstreams, including correspondence, amended returns, paper filings, rejects, and other unresolved items, have risen significantly compared with pre-pandemic levels heading into the 2026 filing season.
Modernization requires continuity
One of the most important realities facing tax administration today is that the IRS is navigating a generational modernization effort. Legacy infrastructure that has supported tax administration for decades is being phased out in favor of newer, more structured platforms.
A clear example is the IRS transition away from the decades-old FIRE (Filing Information Returns Electronically) system toward IRIS (Information Returns Intake System) for receiving and processing information returns (e.g., Forms 1099, 1098, etc.). IRIS is a modernized framework designed to enable more secure and validated electronic reporting. This evolution is necessary, as legacy systems like FIRE were not created to handle the sheer volume of filings the IRS experiences today. That being said, transitions of this magnitude are not simple system swaps. They require sustained investment, extensive testing, and close coordination between the IRS and industry participants.
In the filing season readiness memorandum, TIGTA also points to staffing constraints and delays in onboarding critical seasonal personnel, noting that hiring disruptions and procedural delays may affect readiness and training timelines.
If funding instability hinders the modernization process, the risk is a prolonged hybrid environment where legacy and modern systems must coexist longer than planned. For businesses, that means more complexity: parallel workflows, fragmented technical requirements, increased operational overhead, and uneven readiness across the ecosystem.
Modernization succeeds best when it is executed with continuity.
Real-time validation raises the stakes
The IRS is moving toward more real-time validation models, which can improve accuracy and reduce fraud. In theory, earlier error detection benefits everyone.
In practice, real-time systems also require strong operational support: clear technical specifications, stable environments, responsive issue resolution, and sufficient staffing to manage increased interaction with filers.
When IRS resources are constrained, the burden of validation, correction handling, and reconciliation can shift away from the agency and onto businesses and providers who must still meet deadlines regardless of IRS readiness.
Fighting corrections and notices with technology
The IRS’s resource constraints are most visible when it comes time to fix problems.
Corrections processing, notice handling, and mismatch resolution are already among the most resource-intensive parts of compliance operations for large filers. When IRS systems or staffing are strained, these cycles often slow.
TIGTA specifically highlights pressures on customer service operations, including telephone and in-person assistance, in addition to challenges in meeting service-level goals.
Businesses then face increased time spent responding to IRS correspondence, managing customer, vendor, and employee inquiries, and reconciling discrepancies, even when the underlying issue is administrative rather than taxpayer-driven. Forward-thinking leaders will invest in technologies that operationalize compliance to avoid the friction of understaffed and discontinuous processes that the IRS is facing.
Stability benefits everyone
It is worth remembering that the IRS is not simply a filing agency. It plays a central role in maintaining trust in the broader financial and reporting ecosystem. Withholding systems, tax identity verification, information reporting accuracy, and fraud prevention all depend on a functioning and well-supported tax administrator.
At its core, tax administration depends on stability. Modernization, service, and compliance certainty are all harder to achieve when capacity or resources become unpredictable.
The most successful filing seasons are built on readiness and continuity, and businesses and taxpayers alike benefit when the IRS is positioned to deliver both.
ABOUT THE AUTHOR:
Wendy Walker is a vice president of regulatory affairs at Sovos. Leveraging more than 15 years of industry experience leading tax operations and compliance teams, she now plays a pivotal role in driving Sovos’ regulatory and policy strategy throughout the IRS and state tax agencies.
Wendy proactively develops and advocates Sovos’s related positions and influences emerging strategic issues in tax legislation and regulation which impact Sovos and its’ clients. Wendy is the secretary of the National Association of Computerized Tax Processors (NACTP) and an active member of the Council for Electronic Revenue Communication Advancement (CERCA). In these roles, Wendy advocates for improvements in tax administration with members of the IRS and state tax authorities.
Wendy believes in a fair and transparent tax system, and a system that provides administrative ease. Her philosophy is to advocate for business and individual taxpayers while balancing the need for fairness and transparency in the tax system.
Outside of work, Wendy is an avid runner and enjoys quilting. A former Sovos client working in tax operations and tax compliance, Wendy came to Sovos to help other organizations realize the benefits of utilizing modern tax information reporting solutions.
Photo credit: Natalia Bratslavsky/iStock
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Tags: IRS, tax administration, tax season, Taxes, TIGTA
