In a year marked by transition and challenge, the Internal Revenue Service (IRS) finds itself at the heart of a legislative and regulatory whirlwind as lawmakers, tax professionals, and advocacy groups push for sweeping reforms. The ongoing debates—ranging from customer service upgrades to complex international tax documentation—underscore both the agency’s pivotal role in American governance and the persistent friction over its funding, oversight, and modernization.
The backdrop to these efforts is a familiar one: years of chronic underfunding, an aging workforce, and outdated technology have left the IRS struggling to keep pace with an ever-evolving tax code and rising demands from taxpayers. According to reporting from the Tax Foundation, these structural issues were only exacerbated in 2025, when the agency underwent significant leadership changes, staff reductions, and funding cuts. As the IRS grappled with implementing a major new tax law, the need for reform became all the more urgent.
Congress, recognizing the stakes, has a long tradition of bipartisan action on IRS reform. From the 1998 IRS Restructuring and Reform Act to the more recent 2019 Taxpayer First Act, lawmakers have often found common ground on measures to improve tax administration. Yet, recent years have seen this consensus fray, particularly over the question of funding. After a failed bipartisan effort to boost IRS resources in 2021, Democrats pushed through $80 billion in new agency funding as part of the 2022 Inflation Reduction Act—without a single Republican vote. Much of that funding, especially the $46 billion earmarked for enforcement, became a lightning rod for partisan disputes. Ultimately, $42 billion of the total was clawed back through bipartisan budget agreements, leaving the agency’s future uncertain.
Despite these clashes, there remains broad agreement on the need to strengthen taxpayer services and invest in technology. The bipartisan fiscal year 2026 funding compromise, for example, increased IRS taxpayer services funding by $260 million, a 9% boost. Both parties acknowledge that better customer service is essential, and that the agency’s digital tools and call centers must be brought into the 21st century.
Into this environment stepped Senate Finance Committee Chair Mike Crapo (R-ID) and Ranking Member Ron Wyden (D-OR), who in early 2025 released a discussion draft packed with 67 provisions across 10 titles. According to the Tax Foundation, these proposals touch on everything from customer service and small business issues to oversight of tax preparers and taxpayer protections. While several of these reforms passed the House as standalone bills in 2025—two even became law, improving IRS math error notices and extending tax relief to those affected by state-declared natural disasters—the Senate Finance Committee has yet to advance the comprehensive package as of February 2026.
So, what’s actually in the Crapo-Wyden draft? For starters, it aims to make the IRS more user-friendly. The proposals would require the agency to launch a dashboard showing real-time phone wait times, deploy callback technology so taxpayers aren’t left on hold for hours, and improve communications about payment alternatives for those facing economic hardship. There’s also a push to remove funding caps on Low-Income Taxpayer Clinics, which provide critical assistance to vulnerable filers, and to add special codes to paper returns to speed up digitization and reduce backlogs.
Watchdog oversight would also get a boost. The National Taxpayer Advocate (NTA), a non-partisan official who defends taxpayer rights, would be allowed to hire independent attorneys reporting directly to her. The IRS would be required to provide the NTA with all necessary information, including legal advice—addressing concerns that the agency sometimes withholds data. In times of government shutdown, staff responsible for helping taxpayers in economic distress would be exempt from furloughs, ensuring continuity of service.
Crucially, the draft also targets the sometimes murky world of paid tax preparers. Millions rely on these professionals to navigate the tax code, but bad actors can exploit the system. The reforms would expand penalties for preparers who alter returns after a taxpayer has signed, create new penalties for using invalid Preparer Tax Identification Numbers (PTINs), and increase sanctions for improper preparation or refund misappropriation. The IRS would gain authority to deny or revoke PTINs for preparers who fail criminal background or tax compliance checks, or who skip required continuing education.
Other proposed reforms may seem small but carry real weight. For example, the draft would postpone tax deadlines for Americans held hostage abroad, so neither they nor their spouses have to worry about late penalties during traumatic ordeals. It would also rationalize the schedule for quarterly tax payments, ending the current uneven intervals between deadlines.
While the House has already passed 10 of these provisions, with two becoming law, the Senate’s comprehensive action remains pending. Lawmakers and policy experts argue that 2026 presents a unique opportunity to finish the job—especially now that the heated reconciliation debates of previous years have cooled. As the Tax Foundation notes, “Congress should finish the job in 2026, which would give the IRS more tools to assist taxpayers and re-establish the long, bipartisan tradition of improving one of the government’s most important agencies.”
But the push for reform isn’t just coming from Capitol Hill. On February 12, 2026, the American Institute of CPAs (AICPA) weighed in with its own urgent plea to the Treasury and IRS. In a letter responding to Notice 2025-75, which governs the tax treatment of certain foreign corporations’ earnings before January 1, 2026, the AICPA flagged serious concerns about the “determine and document” requirement. This rule obliges taxpayers to prove that specified dividends increased their taxable income—a task that, according to the AICPA, can be nearly impossible when transactions have already closed and there’s no ongoing relationship with the buyer or a contractual duty to provide post-closing tax certifications.
“This guidance does not explain what level of analysis, substantiation or third-party information is required to comply with the ‘determine and document’ requirement,” said Reema Patel, AICPA Tax Policy and Advocacy senior manager, as reported by The Accountant. “In addition, many transactions to which the transition rules apply have already closed, making the AICPA’s recommendations even more essential.”
The AICPA’s letter urged the Treasury and IRS to either eliminate or significantly scale back this documentation burden. As an alternative, they suggested a per se rule or safe harbour for cases where inclusion in taxable income is already mandatory under the Internal Revenue Code. For other situations, they recommended clarifying that general federal income tax principles should apply and specifying what forms of documentation would be sufficient proof of dividend income.
These calls for clarity and flexibility highlight the practical challenges taxpayers face amid shifting regulations and complex international transactions. The AICPA’s intervention underscores a broader theme: that well-intentioned reforms can sometimes create unintended obstacles unless agencies provide clear, workable guidance.
Looking ahead, the path to lasting IRS reform in 2026 will require continued engagement between Congress, the administration, industry groups, and ordinary taxpayers. Policymakers must balance the need for robust enforcement and taxpayer protection with the realities of limited resources and the complexities of modern tax administration. Ultimately, the coming year could prove decisive in reshaping the IRS for a new era—one in which service, transparency, and accountability are not just aspirations, but everyday realities for millions of Americans.