Taxpayers and tax professionals increasingly expect the IRS to work like a modern digital agency.
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The IRS Electronic Tax Administration Advisory Committee (ETAAC) has released its 2026 Annual Report to Congress. ETAAC acknowledges that the IRS has made progress in its efforts to be more tech-forward. But the report also makes it clear that modernization is not finished and, in some areas, is still catching up.
Recommendations in the Annual Report
The report includes 18 recommendations. Some are highly technical, like improving Modernized e-File (MeF) reject codes and building better API access. API access means one computer system can securely connect to another and automatically request or send data, so for example, instead of a tax pro logging into an IRS account for taxpayer information, API access could allow authorized software to request that information directly from the IRS after the taxpayer has given permission.
Others are the kinds of things taxpayers and tax pros have been asking for for years, like better online accounts, faster issue resolution, more useful notices, and less reliance on paper.
ETAAC credits the IRS for recent improvements, including online accounts, digital notices, document-upload tools, telephone improvements, and chatbot capabilities. But the report also points out what many taxpayers and tax professionals already know: there are still too many systems that don’t talk to each other or use the same tech.
ETAAC says the IRS needs to continue moving toward a unified, modern technology stack. That means reducing reliance on aging systems, improving interoperability, and avoiding the temptation to keep adding new tools on top of old infrastructure (some systems date back to the Kennedy era).
EFIN and PTIN Validation
ETAAC says the IRS should implement real-time validation of Electronic Filing Identification Numbers (EFINs) and Preparer Tax Identification Numbers (PTINs). These are the credentials that tax preparation businesses and individual preparers use to e-file.
Right now, there is no easy way to independently verify whether an EFIN or PTIN is valid—or if it’s been stolen. Identity thieves increasingly target tax pros to get access to these credentials and to the taxpayer data that comes with them. ETAAC recommends building secure APIs that allow verified industry partners to validate credentials in real time. This has been on their radar for some time and the committee notes that budget shortfalls have repeatedly delayed progress.
Artificial Intelligence
ETAAC supports the IRS using Artificial Intelligence (AI) to improve accuracy, speed up service and strengthen compliance and security. That could include fraud detection, identity verification, and other internal processes.
But ETAAC also stresses that if the IRS is going to use AI, taxpayers should also understand how it’s being used. The report recommends that the IRS publish and regularly update a public AI disclosure dashboard or webpage written in plain language to explain how the IRS is using AI, what the process looked like before AI, how risks are being managed, and how taxpayers can seek help or challenge an AI-assisted action.
Treasury previously published a public inventory of AI use cases that included the IRS, but that inventory is no longer publicly available as of spring 2026. ETAAC’s call for a new public dashboard is a response to that gap.
ETAAC also recommends public town hall-style meetings on IRS AI projects, especially those that could affect taxpayer rights or safety.
IRS Online Accounts
One of the most practical parts of the report focuses on IRS Online Accounts and Tax Pro Accounts.
For taxpayers, online accounts can be a great way to check balances, make payments, view some notices, and access information without calling the IRS. (I’ve been encouraging taxpayers to sign up for theirs.)
For tax professionals, Tax Pro Accounts are supposed to make it easier to represent clients and resolve issues.
But ETAAC says the accounts still lack important functionality and recommends some changes that would be especially welcome to practitioners. That includes allowing authorized representatives to view notices, access complete and timely transcripts, and communicate securely. That should result in fewer phone calls and faxes, and less waiting for information.
(As a tax pro, I’ll just say, “Yes, please.”)
Access For Tax Professionals
ETAAC also recommends that tax pros with proper authorization, like Form 2848, be able to access taxpayer information online.
Right now, representatives often have to rely on inconsistent mail, fax, phone calls—with lengthy waits—or incomplete transcript information. It’s not uncommon for taxpayers to receive notices that their representatives haven’t received and cannot access.
ETAAC recommends a centralized online location where authorized representatives can access taxpayer information. The committee also recommends online workflows for submitting documents and resolving eligible account matters. That would save time for taxpayers, tax pros, and the IRS.
Transparency in Return Processing
The report recommends that the IRS enhance transparency in tax return processing and issue resolution, an area where, according to the National Taxpayer Advocate, meaningful gaps remain. For example, with the “Where’s My Refund?” tool, if something goes wrong, the tool may direct taxpayers to call the IRS. When they do, IRS agents often can’t provide any additional information beyond what the tool already shows.
ETAAC recommends developing a more detailed return-tracking tool, expanding digital notices, and building a public-facing dashboard that displays current wait times and processing timelines. The committee also recommends enabling authorized third parties—typically, tax pros and software providers—to access return status information with taxpayer consent.
Information Returns And Data Sharing
The report also focuses on faster and better data sharing. Specifically, ETAAC recommends that Congress accelerate the filing deadline for Forms 1099-R and 1099-K from March 31 to January 31. The idea is that earlier information reporting would allow the IRS and state tax agencies to match information sooner, detect fraud earlier, and reduce after-the-fact corrections.
The tax season generally opens in late January. But if the IRS does not have the information it needs when returns are filed, refunds may be delayed and taxpayers may receive notices about errors months after they thought they were done.
E-Filing And Reject Codes
E-filing remains a key part of IRS modernization. But ETAAC notes there are still problems. For example, when an e-filed return is rejected, the IRS provides a reject code and message. Sometimes, those messages are not clear enough to help fix the problem. Better explanations could reduce frustration, cut down on calls to the IRS, help software companies improve their products, and keep more taxpayers from giving up and filing on paper. That matters because paper returns are slower and more expensive to process—Erin Collins, the National Taxpayer Advocate, refers to paper as the IRS’s “kryptonite.”
ETAAC also urges the IRS to expand e-filing for additional return types.
Automatic Extensions
The committee also says the IRS should stop making taxpayers file extra paper to request extensions that are granted automatically.
During tax season, if you file an extension on time, it’s automatically granted—you don’t have to offer a reason or wait for an approval. So, if the extension is intended to be automatic, why require an extra step? That simply creates busywork for taxpayers, tax pros, software companies, and the IRS.
According to figures cited in the report, there were nearly 18 million Form 4868 extension requests for individual income tax returns in calendar year 2023 (more than 10% of all individual taxpayers), along with nearly 10 million Form 7004 extension requests for certain business returns. That’s a lot of extra processing. Reducing that kind of redundant filing could free up IRS resources and make the process easier for taxpayers.
ETAAC is not recommending moving payment deadlines. An extension to file is not an extension to pay, and ETAAC isn’t suggesting that should change. Those would remain tied to the original due date.
Refund Fraud
ETAAC recommends taking more steps to prevent improper refunds before they are issued while avoiding unnecessary delays for legitimate taxpayers.
That includes measures to stop ghost preparers. Ghost preparers are paid preparers who intentionally fail to sign returns or include a valid PTIN. That makes it harder for the IRS to identify the preparer and easier for the taxpayer to be left holding the bag when something goes wrong. ETAAC recommends criminal sanctions for willful ghost preparation since existing civil penalties may not be enough to deter intentional or repeated misconduct.
The report also points to a growing problem with refund schemes promoted on social media. These schemes often encourage taxpayers to inflate withholding or credits to claim improper refunds. ETAAC recommends modernizing the rules so that the IRS can address high-volume, clearly abusive claims more efficiently.
Regulating Preparers
ETAAC again recommends that Congress authorize the IRS to regulate non-credentialed paid tax return preparers. This has been an issue for years. About half of individual taxpayers use paid preparers, including those who are not credentialed.
ETAAC recommends that Congress allow the IRS to establish minimum standards for paid preparers. Those standards could include a background check, tax compliance check, valid preparer tax identification number, education requirements, and a basic competency exam.
The report also raises concerns about the growing trend of outsourcing tax return preparation to preparers located outside the U.S. ETAAC recommends the IRS conduct a comprehensive study into how many returns are being prepared offshore, citing concerns about taxpayer data security and the handling of sensitive information like Social Security numbers by individuals outside of the U.S.
Identity Theft And Delayed Refunds
ETAAC also recommends that the IRS use AI to improve identity-theft filters and allow vetted tax pros to help verify taxpayer identities.
According to the NTA, current fraud filters produce a high number of false positives—about 54% of cases flagged by the system are later determined to be legitimate, affecting nearly 1.3 million tax returns. The NTA also reports that the average time to resolve identity theft victim assistance cases and release refunds was 676 days as of fiscal year 2024. For taxpayers who rely on refunds to pay bills, cover rent, or catch up financially, a long delay can be devastating.
Payroll Providers And Reporting Agents
The report also includes recommendations for reporting agents and payroll providers. ETAAC notes that reporting agents account for 92% of e-filed employment tax returns. Despite this, they still lack adequate online tools for interacting with the IRS.
The committee recommends allowing payroll providers access to TIN-matching services, creating online accounts for reporting agents, building account resolution tools, allowing bulk transcript access, and prioritizing APIs between payroll providers and the IRS.
Those changes would help payroll providers, but they would also help employers. Better validation and better account access could mean fewer filing errors, fewer payment problems, and fewer penalty notices.
Employment Tax Returns
ETAAC recommends that the IRS prioritize the e-filing of employment tax returns such as Forms 940 and 941. Amended payroll returns can create significant paper-processing challenges, including payment inefficiencies, processing errors, and data mismatches.
(If you’ve followed the news related to the Employee Retention Credit (ERC) backlog, you know how painful paper-based amended employment tax return processing can be.)
To address some of these issues, ETAAC recommends creating a portal for small businesses that do not use payroll providers and allowing electronic signatures for employment tax returns.
Digital W-2s
ETAAC also says that Congress and the IRS should allow electronic delivery of Forms W-2 unless an employee specifically requests a paper copy. Right now, employees generally must affirmatively consent to receive Forms W-2 electronically. ETAAC recommends switching to a digital default, with paper still available by request.
The committee says paper wage statements can be mailed to outdated addresses, creating risks of identity theft and fraud. Digital delivery could reduce costs, improve efficiency, and better protect taxpayer information so long as taxpayers who need paper can still get it.
Communication And Scams
Finally, ETAAC recommends better communication, outreach, and education around tax law changes and scams. That is especially important when new laws are enacted close to filing season or when social media schemes spread quickly.
The report recommends that the IRS improve its guidance, outreach, and fraud-reporting tools. The IRS has already launched a “Report Fraud” webpage, and ETAAC encourages the agency to keep taking steps to better communicate with taxpayers.
Funding
Of course, none of this happens without money.
ETAAC identifies the need for stable IRS funding as one of the biggest challenges facing the agency, a view shared by the NTA, the IRS Advisory Council, and the Treasury Inspector General for Tax Administration (TIGTA).
The report urges Congress to provide flexible, predictable, multi-year funding so the IRS can train employees, modernize systems, and administer new tax laws without constant disruption. If lawmakers want the IRS to answer the phones, process returns, stop fraud, modernize systems, and implement new tax laws, they have to fund the agency.
The IRS has shed roughly 25% of its workforce between January and May 2025, largely due to Department of Government Efficiency (DOGE) cuts, while its FY 2026 discretionary appropriations were cut by approximately $1.1 billion below FY 2025 levels. At the same time, the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, added a slew of new rules, including new Trump Accounts, and new forms, including a new Schedule 1-A for the temporary “no tax on tips” and “no tax on overtime” deductions. The IRS is implementing all of this with a smaller workforce and less money.
About ETAAC
ETAAC was formed and authorized under the IRS Restructuring and Reform Act of 1998. ETAAC members represent various parts of the tax community, including tax professionals, software providers, payroll providers, state and local administrators, and others involved in tax administration.
As part of the law, ETAAC is required to report to Congress on issues related to electronic tax administration, including taxpayer experience, identity theft, refund fraud, and cybersecurity. This year’s report focuses on six priority areas: technology and data sharing, sustained IRS funding, artificial intelligence and human-centered design, digital filing and payments, tax simplification and outreach, and fraud prevention and preparer regulation.
In her message accompanying the report, ETAAC Chair Amy Miller notes that taxpayers want a system that is easier to use, and tax pros want tools that let them help clients. The IRS needs technology and funding that match what Congress and the public expect it to do.
You can read the ETAAC report in its entirety here.
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