IRS watchdog tells Congress: Fix tax mess before modernization goes off the rails

Every tax season, millions of Americans run into the same frustrating problem: the IRS is expected to work like a modern app, but it is often forced to operate like an old diner with a broken ticket machine, a packed lunch rush, and a menu Congress keeps rewriting.

That is the real story behind a new IRS advisory report released June 17. The Electronic Tax Administration Advisory Committee, known as ETAAC, issued its 2026 annual report with 18 recommendations for improving electronic tax administration. Twelve are aimed at the IRS, while six are aimed at Congress. That split matters because the report is not just telling the IRS to upgrade its software. It is pointing to a bigger operating problem in the tax system.

The IRS can improve its technology, filing tools, payment systems, taxpayer service, fraud controls, and digital experience. But Congress still controls many of the rules, funding choices, and legal limits that shape how hard the system is to run. Taxpayers usually do not see that machinery. They just feel the pain when something breaks.

The tax system has a plumbing problem

Most people think about taxes once or twice a year. They file a return, wait for a refund, make a payment, or call someone when a confusing notice shows up. But behind that simple moment is a massive machine involving IRS systems, state tax agencies, tax software companies, payroll providers, banks, paid preparers, fraud filters, identity checks, paper forms, digital accounts, phone lines, notices, and payment records.

It is not one machine. It is more like a busy restaurant kitchen during the lunch rush. If one station slows down, the whole line backs up. That is why ETAAC’s recommendations focus on six major 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 with preparer regulation.

In normal language, the committee is asking for better tools, easier rules, steadier funding, stronger fraud protection, and clearer standards for people who prepare tax returns. None of that is flashy. But it is the kind of work that decides whether tax season feels manageable or miserable.

Better IRS tech will not fix bad tax rules

The easiest story to tell is that the IRS needs better technology. That is true, but it is not the whole story. Taxpayers now expect online tools to work like the financial apps they use every day. They want to file, pay, check their account, fix a problem, and get clear updates without calling five times or decoding a notice written like a legal memo.

The IRS does need modern systems. But even great software has limits. If Congress keeps adding complicated tax rules, credits, exceptions, forms, and reporting requirements, somebody has to turn all of that into a working process. The IRS has to administer it. Tax software companies have to build around it. Preparers have to explain it. Taxpayers have to answer the questions.

The complexity does not stay in Washington. It ends up on a small business owner’s desk at 11 p.m., in a tax office with a line out the door, and in a confusing letter that makes a normal person feel like they did something wrong. That is why ETAAC asked Congress to think harder about tax simplification when creating tax policy. Every complicated rule has a cost, and someone pays it in time, money, stress, or mistakes.

Congress is part of the bottleneck

Six of ETAAC’s recommendations went directly to Congress, which is the committee’s polite way of saying the IRS cannot fix the whole system alone. One major ask is predictable IRS funding. That matters because modernization does not work well in fits and starts. You cannot rebuild a massive tax system like someone patching a roof between storms. You need steady money, long-term planning, and enough people to keep today’s system running while tomorrow’s system is being built.

ETAAC also asked Congress to prioritize continued technology modernization. That may not sound exciting, but it is practical. The tax system handles huge amounts of sensitive data and money, so it needs systems that can keep up with modern expectations and modern threats.

Then there is the preparer issue, which deserves more attention than it usually gets. ETAAC wants Congress to give the IRS authority to regulate non-credentialed tax return preparers. Many taxpayers assume that if someone gets paid to prepare a return, that person has met clear federal standards. But that is not always true.

Some preparers are excellent. They are trained, careful, and honest. Others are not. And when a bad preparer makes a mess, the taxpayer often gets stuck holding the mop. The IRS notice goes to the taxpayer. The penalty goes to the taxpayer. The stress goes to the taxpayer. Stronger oversight would not make every problem disappear, but it could raise the floor in a system where millions of people rely on paid help.

Fraud is the tax system’s ugly side hustle

The report also puts fraud prevention near the center of the conversation, which is not surprising. A tax return is not just a form. It is a pile of valuable information: names, Social Security numbers, wages, dependents, addresses, bank accounts, and refund details. For criminals, that is not paperwork. It is inventory.

The IRS, state tax agencies, and the tax industry have worked together through the Security Summit since 2015 to fight tax-related identity theft and cybercrime. ETAAC works closely with that effort, and its report keeps fraud prevention tied to the broader modernization push.

The hard part is balance. The IRS has to make filing easier for honest taxpayers while making it harder for fraudsters. Too much friction, and regular people get stuck. Too little friction, and criminals walk through the front door. That is a brutal design problem, and it is why modernization cannot simply mean making everything faster. Faster is good, but safer matters too.

AI might help, but only if humans can actually use it

ETAAC also flagged artificial intelligence and human-centered design as a priority area. That phrase can sound like something from a conference badge, but the idea is simple: new tools should make the tax system easier for people, not just easier for the agency.

AI could help taxpayers find answers faster. It could help spot fraud. It could help IRS teams sort problems more efficiently. But only if the tools are built around real people with real questions. Taxpayers do not care that a system is advanced. They care whether they can understand the answer, fix the issue, trust the result, and reach a human when the situation is too messy for an automated tool.

The real story is taxpayer trust

Most people will never read ETAAC’s report. They probably will not care who sits on the committee, and they will not track all 18 recommendations unless they work in tax. But they will care when the system touches their life.

They will care when their refund is late, when their payment does not post, when a notice makes no sense, when they cannot get help, or when a preparer files something wrong and disappears. That is why this report matters more than its title suggests. It is really about trust.

A tax system does not need to feel delightful. Nobody is asking the IRS to be a theme park. But it does need to feel reliable, understandable, and safe enough for regular people to use without panic. It also needs to protect taxpayers when criminals or bad preparers try to exploit the system.

IRS leadership says it will review the report

IRS Chief Executive Officer Frank J. Bisignano thanked ETAAC members for their time and work, saying the agency appreciates the effort that went into the report and looks forward to reviewing the recommendations. He also recognized four members whose terms ended with the release of the report: Douglas Harding of the Connecticut Department of Revenue Services, Carol Lew of Stradling, Yocca, Carlson & Rauth, Stephanie Plaza of Wolters Kluwer, and Mark Steber of Jackson Hewitt Tax Service.

ETAAC operates under the Federal Advisory Committee Act. Its members come from across the tax world, including taxpayers, tax professionals, software developers, payroll providers, financial firms, and state and local governments. That mix matters because the committee is not looking at the tax system from one seat. It is looking at the mess from the taxpayer side, the software side, the preparer side, the government side, and the fraud-prevention side.

The message from all those seats is pretty clear: the IRS needs to keep modernizing, but Congress has to stop treating modernization as only an IRS problem.