IRS System Outages and Staffing Losses Drive Paper Tax Return and Refund Delays
A report from the U.S. Government Accountability Office indicates that while electronic tax filers experienced a relatively standard 2026 filing season, taxpayers and businesses submitting paper returns faced severe processing backlogs and refund delays. Technical outages and an 18 percent decline in submission processing staff burdened agency operations. Overall, the agency processed 98 percent of the 177 million individual and business filings received during the season, primarily because 95 percent of all returns arrived electronically.
For filers relying on physical paperwork, operational timelines lengthened significantly. Average processing times for individual paper returns rose to 30 days, up from 16 days in the previous filing season, caused in part by individual paper return processing systems failing during the initial six weeks of filing. Business paper filers faced even longer waits because the agency's business return scanning system remained unavailable for the entire filing season. Consequently, the average processing window for paper Form 941, the Employer’s Quarterly Federal Tax Return, expanded to 72 days in 2026, compared to 45 days in 2025 and 25 days in 2024.
To handle the system outages, the tax authority relied heavily on third-party contractors. Vendors scanned roughly 3.7 million business paper returns, representing a 725 percent increase over the 443,000 returns sent to outside contractors the prior year. According to agency officials cited in the report, the loss of experienced IT acquisition personnel delayed essential procurement actions needed for programming updates tied to tax law changes and digital refund infrastructure.
Paper refund issuances slowed considerably following a federal policy mandate directing agencies to shift away from physical checks toward electronic payments. The tax agency issued approximately 4.2 million notices requesting direct-deposit details before releasing refunds electronically. Taxpayers who did not respond within 30 days were issued paper checks after a six-week waiting period. This shift caused the average paper refund processing timeframe to jump from 13 days in 2025 to 36 days in 2026, while total paper refund check volume dropped by more than 80 percent by early April.
Customer support options also contracted during the season. Fully staffed Taxpayer Assistance Centers fell from 102 to 42, reducing in-person visitor capacity to 626,000 taxpayers from 745,000 a year earlier. For real estate investors, property owners, and business operators, these metrics highlight the operational necessity of utilizing electronic filing and establishing direct deposit for all tax interactions. Submitting paper forms or relying on physical refund checks introduces substantial turnaround risks that can disrupt cash flow and payroll accounting for months.
Source: Journal of Accountancy
