2026 Filing Season: Preliminary Observations on IRS Performance

TL;DR

GAO’s preliminary observations show the IRS processed about 98% of roughly 177 million returns during the 2026 filing season—on par with 2025—but experienced significant delays in paper return processing and some refund issuance. Unavailable processing systems and reduced staffing contributed to longer timelines for paper returns (about one month on average) and forced IRS to send roughly half of paper returns to outside vendors for scanning. In response to a 2025 executive order phasing out paper-check refunds, IRS sent about 4.2 million notices requesting direct deposit information; taxpayers who did not respond within 30 days were slated to receive paper checks after 6 weeks. Customer service shifted toward automation (41% of calls answered by automation), but overall call wait times rose and in-person service declined. Immediate implications: document-processing and tax-adjacent contractors should expect continued demand for scanning, imaging, BPO, and secure IT controls tied to IRS Publication 1075 / NIST 800-53 / FedRAMP (Federal Risk and Authorization Management Program) surfaces, and must prioritize rapid compliance and capture actions.

Key Points

• What happened: GAO found IRS processed about 98% of the 177 million individual and business returns it received in the 2026 filing season, but paper return processing slowed due to unavailable systems and reduced staffing; refund issuance was delayed for taxpayers lacking direct deposit information after IRS began phasing out paper-check refunds in response to a 2025 executive order.
• Who is affected: market segments identified in the event include Document Processing Services; Document Scanning and Imaging; IT Services; Tax Administration Support; Business Process Outsourcing. Specific NAICS codes and agencies named in segmentation: 541214, 561110, 518210, 541511, 541512, 541519, 561499; IRS; Treasury.
• Timeline: GAO analyzed the 2026 filing season that occurred from January 26, 2026, to April 15, 2026; GAO reported IRS had sent about 4.2 million notices as of early May 2026.
• What contractors should do NOW: validate and harden document-processing and scanning workflows to meet IRS Publication 1075 requirements, verify NIST 800-53 and FedRAMP alignment where relevant, prioritize proposals for high-volume imaging and BPO work, and use Cabrillo Signals Match Engine and Proposal Studio to rescore pipelines and accelerate compliant proposals.

Who Is Affected

Document-processing, scanning/imaging, IT services, tax-administration support, and business process outsourcing firms are the primary affected segments. Specific NAICS codes and agencies listed in the segmentation are: 541214, 561110, 518210, 541511, 541512, 541519, 561499; IRS; Treasury. Contract vehicles: Specific contract vehicles pending source review.

Frequently Asked Questions

Q: Did IRS processing performance improve or decline overall in 2026?

A: GAO reports overall processing performance was similar to 2025—IRS processed about 98% of roughly 177 million returns—but paper-return processing and some refund issuance experienced delays due to unavailable systems and reduced staffing.

Q: Why were refunds delayed for some taxpayers?

A: In response to a 2025 executive order, IRS began phasing out paper check refunds and sent about 4.2 million notices requesting direct deposit information as of early May 2026; taxpayers who did not respond within 30 days were to receive a paper check after 6 weeks, leading to delayed refund issuance for many.

Q: What customer-service impacts did GAO observe?

A: GAO found more use of self-service and automation (41% of calls answered by automation vs. 34% last year), about 3 million fewer calls than last year (about 28 million), longer average wait times (8 minutes vs. 3 minutes in 2025), and about 15% fewer in-person taxpayer services (626,000 vs. 740,000).

Definitions

• Filing season: The period during which most individual and business tax returns are processed; GAO analyzed the 2026 filing season as occurring January 26, 2026, to April 15, 2026.
• Paper return processing: Manual handling, scanning, and programming updates required to convert paper tax returns into electronic records for processing.
• Direct deposit: Electronic deposit of tax refunds into a taxpayer’s bank account; IRS requested banking information from taxpayers to issue refunds via direct deposit.

Intelligence Response

• Cabrillo Signals War Room — Already detected this event and delivered this briefing. Continuous monitoring picked up GAO’s preliminary observations and flagged relevant changes in processing and refund policy impacting document-processing demand.
• Cabrillo Signals Match Engine — Automatically rescored opportunity pipelines to surface higher-priority solicitations and incumbency churn where scanning, imaging, and BPO capabilities map to emerging IRS needs.
• Cabrillo Signals Intelligence Hub — Tracking the affected NAICS codes, market segments, and agencies; saved searches will alert when follow-on solicitations or amendments appear on SAM.gov (System for Award Management).
• Proposal Studio (Proposal OS) & Proposal Studio Workflow Tracker — Use Proposal OS to assemble compliance matrices (IRS Publication 1075, NIST 800-53, FedRAMP) and the Workflow Tracker to drive a 9-gate capture process with audit-ready routing and documentation.

Who to notify:

• Capture/BD Lead — to reprioritize pursuit lists and mobilize capture resources.
• Chief Technology/Delivery Officer — to validate scanning and processing capacity and staffing plans.
• Compliance Lead — to ensure IRS Publication 1075, NIST 800-53, and FedRAMP controls are mapped in proposals.
• Operations Lead (Document Processing/BPO) — to scale scanning, vendor management, and quality assurance.

First 48-hour response playbook:

• Hour 0–4: Convene capture, delivery, and compliance leads; ingest this briefing into Proposal Studio; trigger Match Engine rescoring for open opportunities tied to document processing and tax administration support. See Secure Operations Guide (/insights/secure-operations-guide).
• Hour 4–12: Run rapid compliance gap assessment against IRS Publication 1075, NIST 800-53, and FedRAMP baselines in Proposal Studio; identify personnel and tooling shortfalls for scanning and secure transmission.
• Hour 12–24: Produce prioritized bid/no-bid list via Proposal Studio; assign 9-gate Workflow Tracker owners for the top targets; begin compiling audit-ready evidence for security controls.
• Hour 24–48: Start proposal skeletons and capture plans for top 2–3 opportunities; notify BD pipeline and contracting teams and schedule engagement with agency procurement contacts. Reference CMMC (Cybersecurity Maturity Model Certification) Compliance Guide (/insights/cmmc-compliance-guide) and CUI (Controlled Unclassified Information)-Safe CRM Guide (/insights/cui-safe-crm-guide) for handling controlled information.