This transcript has been edited for clarity.

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: 'tis the season.

The IRS recently announced that filing season would begin this year on January 26, halting speculation that the agency's staffing cuts might lead to a later start date.

But practitioners are still concerned that personnel shortages will affect the IRS's performance during this filing cycle. With several new provisions from the One Big Beautiful Bill Act coming into effect, the agency's limited capacity could lead to a backlog of questions and amended returns.

So what will the 2026 filing season look like, and what issues could filers run into? Here to talk more about this is Tax Notes IRS reporter Benjamin Valdez. Ben, welcome back to the podcast.

Benjamin Valdez: Thanks for having me.

David D. Stewart: Now, I understand you spoke with someone about this year's filing season. Who did you talk to?

Benjamin Valdez: I spoke with Philip Hwang. He's the chief tax officer at Optima Tax Relief and the national chair of the Taxpayer Advocacy Panel.

David D. Stewart: And what all did you discuss?

Benjamin Valdez: We discussed the upcoming filing season and some of the new considerations for the IRS and taxpayers, including the One Big Beautiful Bill Act and the new individual tax provisions.

David D. Stewart: Alright, let's go to that interview.

Benjamin Valdez: Philip, welcome to the podcast.

Philip Hwang: Thank you, Ben.

Benjamin Valdez: You were recently named the chair of the Taxpayer Advocacy Panel. Can you describe what TAP is and what this role entails?

Philip Hwang: Sure. Taxpayer Advocacy Panel is a federal advisory committee, actually one of three, that helps advise Congress and IRS on how to improve their processes and tax administration in particular.

TAP is made up of volunteers purely. There is IRS staff that help run the administrative side of things, but the way that I think most people will know TAP is through our annual report. We make recommendations, and not to be confused with the Purple Book, which comes out of the National Taxpayer Advocate Office, who we also report to.

But [this is] grassroot feedback from just normal taxpayers across the nation in our attempts to provide some level of recommendation to improve the IRS.

Benjamin Valdez: Got it. And what kind of issues does TAP see during the filing season when it comes to sort of taxpayer feedback and the kind of issues that you field?

Philip Hwang: Great question. We have a landing spot on our improveirs.org [website] where taxpayers can put in recommendations, and we get all sorts of inquiries during tax season.

A big theme that we see is, "Where's my refund?" A lot of things about the processing of their tax return, especially as of late. In the past few years, IRS did successfully work through a backlog of returns that arose out of COVID, mail delays, mail getting lost, trucks back and forth from service centers. But the themes don't change really. Even in this last year, a lot about where's my refund, what's taking so long, I called this number, was on hold for X number of minutes. So a lot of servicing concerns.

And just to be clear, what we try to look for as part of the panel is systemic issues, but we do see a lot of individual, very use case-specific concerns come through that channel during tax season.

Benjamin Valdez: You mentioned the annual report. What sort of recommendations or topics are you weighing as we go into this filing season in this new year?

Philip Hwang: So we're always working like N minus one, so a lot of it came from last year. Some really hot-button issues are online engagement, scaled customer service. We see there's unauthenticated chatbots where they can answer general questions about your tax situation, but really we're asking for a more tailored approach and perhaps creating some authentication layers so that that chatbot or virtual assistant can help the taxpayer in a more meaningful way.

Other things we looked at was the individual online account. So IRS recently drastically improved and included a lot of features into this account. For me, I'm always looking at ways to make things better, even if it's just one new feature, one new thing, things like including all notices on that online account. Right now, it's a limited select view for good reason. IRS currently works on a multitude of systems, so sometimes the left hand doesn't know what the right hand sends out and vice versa. So we just want a central place, centralized location where a taxpayer can self-service in a sense.

Benjamin Valdez: And the Taxpayer Advocate Service along with the IRS has seen large staff cuts this year. Have you seen how those cuts have affected the work the service does?

Philip Hwang: Yeah. So at least as a part of the panel, we did see our applicant pool being frozen. We're not taking any new applications, but the staff is so resourceful. We're looking at calling up alternates that have applied in the past, even extending additional terms. But what I see coming out of it is resilience and dedication to the mission really to help improve IRS to be the voice of the taxpayer.

Unfortunately, it did leave us impacted as well. We have less staff. But with that, we're relooking at our subcommittees that are responsible for different areas. So we have a committee just responsible looking at how to improve notices and correspondence. Another committee looking at taxpayer assistance centers, where you can physically go in with [an] appointment to get help with your tax situation. And so we had about five or six committees. I think we're looking to consolidate that into this new tax season. The same work will be done, same level of care by our volunteers, but we're just working with what we have.

Benjamin Valdez: And the IRS going into this filing season is a very different agency than it was a year ago, largely due to the staff reductions and leadership changes. From a service and responsiveness perspective, what has it been like dealing with the IRS during these changes and how is it today?

Philip Hwang: I feel like the IRS is always a changing organization, for good and for bad, and I think they've adapted really well. I think the first clear indication of that was even the shutdown back in 2018, [which] I believe, before the recent shutdown, was the biggest shutdown. And they had to pivot. They had to figure out what was essential and not essential services. So I feel like through that, I see a constant theme of adaptability.

I think we can always say, "We need more staff. We need more funding," which is true. IRS is one of the few agencies that does bring positive net income to the government, but still I think they have their heads in the right place. They're looking at ways to scale customer service. I think that's the biggest touchpoint that I see in this upcoming filing season to be impacted. Hopefully not detrimentally.

I think they will figure out a way, and I'm confident in their current leadership that they will figure out a way to service taxpayers, whether it's through online accounts, chatbots, maybe some automation, or just being proactive about educating and informing taxpayers what is happening and what to expect. It's all about managing expectations of taxpayers.

And this year does present unique challenges. There's a huge legislative change [in] OB3 [OBBBA] [and] executive policies, like no more paper checks. There's a lot to navigate, but if there's any agency that can do it successfully, I believe it's the IRS. They're responsible for successfully issuing EIPs [economic impact payments] during COVID. So this is just another bump in the road, so to speak, but I think they'll be able to figure a way forward.

Benjamin Valdez: And you mentioned the OB3 and all the new provisions that that is bringing this year. The IRS says that its systems are updated and ready for the filing season, but at the same time, there's still some guidance that's outstanding.

Do you think that we could see an influx of taxpayer questions and concerns relating to this bill?

Philip Hwang: Yes, definitely. I wouldn't be surprised. It takes such a coordinated effort to roll something like this out from industry, from employers, and OB3 touches a lot of different areas. And then ironically, in some regard, not much changes. The tax rates are the same. There's a lot of the TCJA provisions that are just converted to permanent now, such as R&D credits and accelerated depreciation.

But I think the general taxpayer, there's always going to be some narrative they hear about the changes, some new refunds, some expect higher refund rates. And so I think, again, going back to expectations and setting the right ones for the taxpayers, it really depends.

I think as industry, we can do our best to prepare them to help mitigate the need of service from the IRS directly to get ahead of some of those very common questions. It's actually quite surprising that tax season is going to open on [January] 26 of this year. If I were to bet, I would say like, "Oh, they would've maybe delayed it." But no, I think that is actually a great leading indicator that albeit some publication guidances are not fully released, and they're just pushing these things out as soon as they can. I think we'll be fine come tax season, after all is said and done.

Benjamin Valdez: One of the big changes coming this year is the transition away from paper checks and paper refunds, which could have big implications for a relatively small group of filers. Are there benefits to this transition to going fully digital?

Philip Hwang: My initial reaction when I heard about this was like, thank God. I think there's a lot of potential fraud that is mitigated by going fully "digital" with direct deposits and things of that nature. But I believe that those edge cases make up the largest demand for servicing, generally speaking.

That's going to be no different here, but I think the way they're going to administer these changes is thoughtful. I think it takes into consideration those that, I think the clear ones are for religious reasons, they can't open a bank account or be banked. There's a few select other ones as well, I believe. But overall, I think it'll help reduce the amount of fraud that happens.

And sometimes it's out of the IRS's control, right? The chain of custody from processing and return to issuing the check, it goes through so many hands, like USPS is involved as well. And so I think that, overall, it's going to be positive, but with any change, adoption's going to be tough. And I think that's where, as an industry, we can set proper expectations about why this is important, why taxpayers benefit from making this change. And if they need an exception, we can walk them through that as well.

Benjamin Valdez: Do you think there could be challenges to sort of raising awareness about this transition, especially for the groups of taxpayers that don't have a bank account? They probably also have other sort of technology barriers potentially.

Do you think that's something that the administration is going to have to work through?

Philip Hwang: Yeah. And I think it's going to really rely on the industry and the grassroots efforts. I think the unique thing about the tax industry is the spectrum of professionals ranges so greatly, and everyone knows a tax preparer, right? And the one time a year they do interact with them, it's usually a box of receipts they're providing where there's a more organized taxpayer. You get such a varying taxpayer experience through the tax season that adoption is going to be hard to standardize.

And so you have to meet the taxpayer where they are, communicate with them in the ways they can actually hear what you're trying to say and understand the reasons why, especially if that taxpayer has just voluntarily chosen not to be banked, like explaining the pros. And I get it. People have their ways. Some people actually still like writing out their tax returns and mailing it. They feel the sense of accomplishment.

There are things about tax administration from an outsider's perspective that sometimes you think, "That doesn't make sense. Why aren't they doing it this way? Why don't they have an online account?" I know last year or the last few years with ID.me and the whole biometrics of the likeness check and setting up an account, that was a big barrier. And I feel like even being banked, even though it seems like a very simple task, I think it's going to be a road that's not without speed bumps.

Benjamin Valdez: And just to touch again on the fraud that you mentioned that could be potentially mitigated by going fully digital, in a report released last September, the Treasury Inspector General for Tax Administration flagged staff reductions in a few different IRS functions as posing a threat to the success of the 2026 filing season, including an 18 percent reduction in return integrity and compliance staff. They said this could cause a new influx of undetected fraudulent returns.

How does refund fraud affect the average tax filer?

Philip Hwang: Maybe this is a very typical lawyer response, but it really depends to the extent of the fraud. I work in a lot of post-filing issues where fraud has already occurred, where the account's a bit of a mess.

Let's talk about it in two categories. One is just a bad return. They make up the numbers, fake Schedule C, whether it's little or some income, but like a net negative, pushing them into this sweet zone for earned income tax credit, which is a refundable credit, to be distinguished from credits that are not refundable.

And what a refundable credit means is that even though you have zero withholdings, theoretically, that credit will be refunded to you as a form of a check and a refund. Whereas a nonrefundable credit would just go to offset your taxes. It won't generate a refund necessarily. And this is why a lot of fraudsters target either fictitiously creating withholdings, or even if they don't have the withholdings to claim as a refund, they'll put you into a zone where you do qualify for EITC, earned income tax credit.

And so fake returns is one area. That's where I think the staffing cuts may hurt or further delay the processing of legitimate returns. Technology is very sophisticated, and IRS is, I would say, arguably on the cutting edge in a lot of ways. I know in some ways they're antiquated, but in a lot of ways they're very advanced, and I think this is one of the areas with return processing. This is their report card. This is how a taxpayer will give them a grade. It's based on their filing season experience. And getting that refund check for those that are owed it, that's what we hear.

Whether it's my role on TAP or even in my day-to-day, I see a lot of these fraudulent returns or even regular returns being flagged for fraud. The other category of fraud that I do see is with stolen identity, PII. You have Social Security numbers. You could fill out that W-9, work under a Social Security number for whatever purpose. Maybe I take your Social Security number, Ben, and I start working.

And so when you come to file your tax return, all of a sudden there's missing income, but you're totally unaware. You file your return and later IRS comes knocking at your door, just as a figure of speech, but issues you a CP2000, which is automated underreported. And they've detected that, "Hey, Ben, you did not report all your taxes," and now you have a situation where, unbeknownst to the taxpayer, someone used their social to work.

Motivations are different, but I can see that being a complicated web to kind of unwind as well, especially if you're not keeping up with your online account. If you don't regularly, kind of like checking your credit, if you don't regularly pull, see what's happening on your wage and income transcript, you have no idea what's being reported under your social. And so those are the two ways I see it in the day-to-day.

What's most concerning is, to resolve these fraud cases, I think on average, the National Taxpayer Advocate says [takes] about 19 to 22 months. And I don't think that figure has improved much more, but the staffing cuts, I could see that going up, but I'm hopeful. Taxpayer Services have been talking very confidently about their pivots and even in the way they are more sophisticated identifying these returns and resolving them, that gives me some hope. And so I try to be optimistic. We can always find 10 reasons to say it's going to be worse, but hopefully in this area, we can hold our breaths for better.

Benjamin Valdez: There were also some staff reductions in the accounts management and submission processing areas. I'm curious, have you seen that impact at all, especially when it comes to the accounts management?

Philip Hwang: It really depends on the nature of the return. I feel like original returns, generally speaking, are less impacted. I feel like where we felt it a lot is in getting amended returns processed. If you have to amend your return, I would have proper expectations and say you're going to be waiting for quite some time. I imagine with staffing cuts that these areas will be even more impacted.

What a lot of people don't realize is that the same customer service rep that's answering the phones is sometimes also doing paperwork. And so while highly agile and dynamic in terms of how the IRS can allocate resources, human capital, to different areas, it's a double-edged sword. So if they're doing the returns, they're not picking up the phone. And so sometimes you can't have your cake and eat it, perhaps a lot of times. And this is, I think, one of those situations. So they're going to have to continue to innovate and strategize how to meet the taxpayer's needs dynamically so that maybe we don't feel those delays, ideally.

Benjamin Valdez: One of the changes the IRS is adopting this year is relating to the automatically abated penalties for certain taxpayers. I was wondering if you can explain this change and how it differs from the prior process.

Philip Hwang: Yeah, that's a great question. Maybe if we go back to what this penalty waiver is, it's an administrative waiver. It's called a first-time abatement. Basically, under normal circumstances, ours has a standard reasonable clause. And so you state your case, the facts and circumstances of why perhaps you filed late or didn't pay your taxes on time. Those are really the two major penalties, the failure to file and failure to pay, or even say an accuracy-related penalty as a result in an audit. So the IRS representative will evaluate the facts and circumstances and see if a reasonable person would've in your same shoes made the same potential error, and they'll look at it on a case-by-case basis.

The first-time abatement is very different. It's an administrative waiver, meaning that it has very clear rules. Have you filed the past three years? Have you filed and paid timely on those years, meaning there's no penalties accrued? If yes, then here you go, you get another pass. Maybe this year you filed and paid late, accruing a failure to file and failure to pay penalties. Those will all be abated. Interest is not abated. It does get adjusted. So it'll bring you back to as if you filed and paid on time.

But if they don't pay on time you take this waiver, the failure to pay continues. And that's half a percent a month plus compounding interest, which interest compounds daily. And if you're on an installment agreement, it does reduce the penalty to half of that amount, a quarter percent a month, and it does cap out at 25 percent.

But I think the biggest upside of this, and I'm really happy about this change, is that all taxpayers are entitled to this. And a lot of taxpayers didn't know about it. You had to call in, meaning waiting on hold. Sometimes you don't get through as a taxpayer on your lunch break. You have to know what to ask for.

Otherwise, you're playing Russian roulette with whoever's picking up the phone. If they're in a good mood — humans are humans, right? If they're in a good mood, maybe they'll point you to the right direction. Maybe they don't even know. We have a lot of new agents being onboarded constantly, and they're always learning. They can't be expected to know the IRM inside and out. And the IRM is the Internal Revenue Manual. It's a playbook for how whoever's picking up the phone should be guiding the taxpayer through their situation. And so this standardizes that playing field, and everybody gets the same treatment in the sense that this is automatic.

So I suspect probably there's more than a million taxpayers every year that file or pay late where this is going to be beneficial, where they do qualify. And then it's not just once per account. You're going to have to have that pattern of three years of perfect compliance, and perhaps you slip up that fourth year. This will really help lessen the burden on the phones. I think we're talking about the service levels. These are the ways the service can really innovate to help scale the level of service that can be provided, even despite a cut in budget and a reduction in force.

Benjamin Valdez: Tax resolution, it's a year-round affair, but I was just wondering how you're preparing for this filing season and anything that you're just on the watch for.

Philip Hwang: Yeah. Tax resolution and dealing with clients that have outstanding tax balances and actually, tax returns, we're always fighting the clock. I think this time is really pivotal for us and we're glad tax season opened early.

We try to even engage them towards the end of the year. It's like, reminders, please get your books and records ready, get your tax forms. Agencies are starting to issue the informational returns out, the W-2s, the 1099s.

Preparedness is what we focus on in January, so that in February we can get started on those returns —again, filing them for these taxpayers who owe so that we can break this vicious cycle that they got stuck in. They don't owe because they want to. Sometimes life gets the better of you, and you have to make hard choices about perhaps paying your mortgage instead of making that estimated tax payment. And so I think that our goal here is to really provide relief. And some of that is breaking the pattern of behavior that the taxpayer had been stuck in, stealing from Peter to pay Paul.

Benjamin Valdez: And is there anything that you're doing specifically relating to the new tax law? Are you expecting any kind of compliance implications or anything that might come up in the resolution pipeline?

Philip Hwang: Yeah, definitely. I think not just waiting for guidance, but creating our own internally to help service our clients better, getting ahead of those questions, managing expectations about do I qualify? Why is my tax bill so high? Or I thought I was going to get a bigger refund. Don't I qualify for no tax on OT, no tax on tips?

And even people still think, "Oh, I thought Social Security was not taxable now." It's like, well, it depends. OB3A introduced additional exemptions for those that are 65 and older, and it's a quasi way of making Social Security less taxable if you fall into that category where some of it might become taxable. But again, we're having to clarify and educate continuously.

And a lot of that is understanding where these questions are going to come from and really educating them before they need to ask the question. It's like, where can you show me on my return where you took my deduction for no OT? It's like, well, Schedule 1-A, right? Or how do I open a "Trump account"? How do I do this? How do I do that?

And so I think equipping our staff and educating them so that they can better educate taxpayers. [It's] one of the proactive steps we take ahead of any tax season. This one just happens to be a little bit more busy, so to speak, in terms of all the changes that we're going to have to navigate and explain to the taxpayer and client why the return looks the way it does.

Benjamin Valdez: The Trump administration has been setting some very lofty refund expectations and saying that they're going to be maybe the biggest that some people have ever seen. How do you manage that expectation when it comes to dealing with clients and what they ask you about their returns?

Philip Hwang: Oftentimes they'll ask, "Oh, can you revise the return?" And like, "Happy to do so. What new information do you have to provide?" Or like, "What are your expectations?"

I think understanding that is our first step. I think the projections have been coming out about the increased refunds probably stands — I think you're looking at that income range where you have no tax on OT or tips and the retained high standard deduction, plus a slight increase in child tax credits. The combination and confluence of all these changes, it makes sense.

But that situation doesn't apply to everyone, unfortunately. There's phaseouts for all these benefits. There's things that don't apply. Even the temporarily increased SALT [state and local tax] deduction. Well, that doesn't matter if the standard deduction is still larger than what you would itemize.

And so some of these benefits don't really fit to every taxpayer in the same way. And I think just walking the client through how these changes are or are not applicable to them is what we're going to have to do all season long.

Even my in-laws ask me like, "Oh, I heard we're going to get a check for $2,000 because of the tariffs," and it's like, "Well, it depends." And so that's what I rely on. It's like, "I don't know. I don't know for you. Let's talk more. Let's figure out what's going on, what happened in 2025 for you, Ben, and to see which one of these changes really do apply."

And if you think about it, some people bought solar in the year before in 2024. There's reasons why, but there's recency bias in a lot of taxpayers' mind. They just look at the last year and they're like, "Is it more or less? Is my tax more or less? Is my refund more or less than last year?" And then explaining the delta is the challenge that we have.

Benjamin Valdez: Philip, thank you so much for your time.

Philip Hwang: No, thank you. I really appreciate this opportunity. Glad to be here.