GAO Finds IRS Could Improve Staffing, ERC Administration

Four Government Accountability Office reports on the Internal Revenue Service released since September 2024 found shortcomings in filing season staffing, information return filing changes, and administration of the employee retention credit, two GAO officials said March 17.

The GAO’s report on the 2025 tax filing season was released March 16 and found that “workforce challenges” in 2025 hindered the IRS’s ability to provide customer service, reduce its backlog of correspondence, address the losses of staff in its workforce plans, prepare for the next filing season, and implement law changes, said Erin Saunders-Rath, assistant director for strategic issues at the GAO.

During the 2025 filing season, the IRS received about 7.6 million pieces of correspondence, of which 64% or 4.9 million were not answered on time, Saunders-Rath said. Delays in correspondence have been a “persistent problem since the [Covid-19] pandemic,” she said.

Contributing to the delays were that customer support representatives spent 58% of their time answering calls and 42% answering correspondence, but cannot do both tasks at once and as a result spent more than 950,000 hours of idle time, or about 22% of total phone service time, waiting to answer calls and additionally worked 1.2 million hours of overtime, Saunders-Rath said. “That overtime is spent typically on answering correspondence,” she said.

The GAO found that IRS workforce reductions were “not a strategic effort to reduce staff in certain areas, so it did affect their mission,” Saunders-Rath said. More than 26,000 staff left in 2025, including retirements, but more than 17,000 of those were from the federal Deferred Resignation Program or early retirements, Saunders-Rath said.

The report found that with a rotating cast of acting and permanent top officials, the agency tends to wait for guidance from the Treasury Department before implementing changes including reorganizations and executive orders, Saunders-Rath said. In December, the agency was still waiting for guidance on Executive Order 14247, which required them to stop sending and receiving paper checks, including how to grant exceptions for taxpayers to continue using them, she said.

In the report, the GAO said “IRS officials told us that implementing this executive order is a multi-year effort and that IRS will not refuse paper checks from taxpayers in 2026.”

“For this filing season, I know IRS was keenly aware of its own challenges,” Saunders-Rath said. The agency rescinded some DRP offers to bring back some employees, but the workforce reductions also meant senior IT staff that left could not be replaced easily and junior staff were left to do their tasks, she said.

The agency was also unsure of its hiring target for the 2026 filing season because of potential technological changes, including its goal to go paperless and to scan paper documents, affecting how many employees could be needed to work on paper returns, Saunders-Rath said.

A GAO report on the IRS’s IT modernization efforts released in September 2025 found that the IRS spent $1.5 billion on modernization in fiscal 2024, but paused modernization in March 2025, Saunders-Rath said.

A September 2024 report on information returns focused on a lowered threshold for filing Form 1099-K, Payment Card and Third Party Network Transactions, which was delayed from taking effect in 2022 and was ultimately undone by the One Big Beautiful Bill Act (Pub. L. 119-21), as well as the introduction of Form 1099-DA, Digital Asset Proceeds From Broker Transactions, said Dawn Bidne, a GAO senior analyst for strategic issues.

The report found that the IRS “had not drawn on any lessons learned” from the Form 1099-K changes, where public confusion resulted in the delays, to the Form 1099-DA rollout and was not planning to evaluate its own communication around Form 1099-DA, Bidne said. In particular, the GAO found that the IRS needed to educate the public on reporting requirements, she said.

The report found that data on information returns filed in 2022 showed Forms 1099-B, Proceeds from Broker and Barter Exchange Transactions, were the most common information return filed and accounted for 4.1 billion, or 76%, of all information returns filed, Bidne said. Forms W-2 accounted for 270 million forms, or 5%, while all other forms accounted for 1 billion, or 19%, she said. However, the report cited IRS estimates that Form 1099-DA would “more than double the total of all information returns received,” she said.

A report on the employee retention credit program released Feb. 10 addressed how the IRS can prevent improper payments in future similar programs, Bidne said. The agency moved less quickly to resolve claims than it did to implement the ERC and could not process many claims until the unemployment rate returned to normal after the Covid-19 pandemic, she said.

Some of the ERC program’s design “increased complexity and improper payment risk,” Bidne said, including that a “government order” suspending business operations was not clearly defined but was required to claim the ERC. Bidne said that 86% of ERC claims were filed on amended returns, primarily Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, which could not be e-filed until 2024 and required the extra work associated with processing paper forms.

The GAO found that the program would have benefited from additional eligibility reporting on employment tax returns that was not already required, Bidne said. For example, a questionnaire asking how an employer was eligible was sent when the employer was being audited for an ERC claim but could have been useful to include on employment tax returns, she said.

The IRS also did not provide timely updates on claim processing and when providing updates “may have led employers to expect claim processing that was not occurring,” Bidne said.

The report found that as of May 2025, the IRS did have “procedures for compliance planning” for new legislation, but not those specific to emergency situations such as a future employment tax credit, Bidne said.