This is the second in a series of conversations between US tax system insiders and experts on the status and problems of the U.S. Internal Revenue Service. Today’s installment features Garrett Gregory, a tax attorney who spent 12 years in the IRS’s Office of the Chief Counsel – the IRS’s top lawyer – before founding the Dallas-based tax-focused Gregory Law Group. Bruce Willey is the CEO of American Tax & Business Planning based in Cedar Rapids, Iowa.
Installment 2: With the IRS in Turmoil, What Should Americans Expect for the 2026 Tax Season?
Bruce Willey: Garrett, the 2026 tax season is now in full swing. How do you think it’s going to go? We’ve had seven IRS Commissioners come and go in the past 14 months, and with the DOGE employee buyouts and the AI wave hitting us, do you think it’s going to be the disaster that I’m worried it will be?
Garrett Gregory: That's what I'm expecting. I think there's going to be a lot of chaos. I think the IRS is still backlogged. They're still processing millions of previous returns as they start getting flooded with this year’s.
Bruce Willey: Although most taxpayers at the lower end of the scale aren’t likely to notice anything, I don’t think.
Garrett Gregory: Yes but for our entrepreneurs, our business owners, our sophisticated clients, I think it's going to be really, really a challenge. The IRS is trying to cut down on fraud and waste, so they're holding refunds and not getting the identity theft stuff worked through in a timely fashion.
Bruce Willey: Plus, people are overwhelming the TAS office (editor’s note: Taxpayer Advocate Service). It's just crazy. The W-2 taxpayer won't notice, but the higher-end taxpayer, the more complicated return taxpayer, is going to have an issue.
Garrett Gregory: Oh yeah, absolutely. 100%. Yeah, if you're a W-2 guy and you're waiting on your $500 refund check, I mean it may be a little slow, but it's coming. But your taxpayer with two Schedule Cs and K-1s and 1099s and everything else. That's going to be a mess. It's just going to be a mess. And on top of coming out of a shutdown and trying to get ready for a tax season, the IRS is also wrestling with the “One Big Beautiful Bill.” With all those tax code changes the IRS still announced before the government shutdown that they weren't going to be making changes to the tax forms, so there was no guidance on how to report a lot of the items the bill specifies. So tax practitioners are having to just make stuff up. And they’re doing it because they have to. I mean, that's what the IRS has basically told them – “Hey, whatever you do, as long as it's reasonable, you'll be alright.” Well, okay, but you're going to have stuff on returns all kinds of different places. I don't know how the IRS is going to process all that.
Bruce Willey: What's the advice, then, to those high-end taxpayers? And to some extent, to the preparers and professionals working with them?
Garrett Gregory: I would just say paper your file more than whatever you're doing now. Just do more.
Bruce Willey: Document, document, document.
Garrett Gregory: Yeah, absolutely. If you’re a preparer, you want your client files to be thick. No longer should preparers just take the client's word for expenses. “Oh, yeah, trust me, I have these expenses involved.” No. Your work almost needs to be a dress-rehearsed audit. The more complicated the return, I would say, the more diligence needs to go into the file.
Bruce Willey: Beware the client expenses with all the round numbers?
Garrett Gregory: Yep. The ones that show a $20,000 a year W-2 earner with a $5,000 Schedule C loss, things like that. Everything's got to be tied down. I do represent some CPAs and I’ve seen some get themselves crosswise with the IRS. And I think it stems from too-collegial relationships between them and their clients. “Oh, my client always shoots straight with me.” No, he doesn't. We’ve arrived at a state of affairs where you can't just take your client's word for it. You sort of have to treat them as a frenemy, you know? Document everything.
Bruce Willey: A person’s tax return really tells a story about the person's life. A lot of taxpayers may think, “Oh, it's just numbers. I want to get a refund!”. But the reality is no, no, no – nice round numbers don't work. It’s got to be real. How often do you think accurate tax return figures end in double zeros?
Garrett Gregory: I like your analogy there -- you said a tax return is kind of the story of their life for the year. I say the tax return itself is really like the last chapter of a book. But the IRS picks up the book and they're like, okay, great, here's all these positions and all these things that happened. So the file, the CPA's file, needs to be the earlier chapters in the book that explain how we get to that last chapter.
Bruce Willey: So what's the advice to the higher-end taxpayers themselves?
Garrett Gregory: Same thing: Document and log. They can’t just say to their accountant, “Well of course I'm this professional in my industry, so of course I have these expenses.” That won’t be good enough. We've got to be able to tie everything back to bank records and credit card statements. We've got to show the money's actually going out. For things like material participation, they’ve got to log it. I’d go one step farther and say to keep a diary, literally keep a diary. Have something you can tie to that literally says, “I went there on Tuesday, and I got in at 8 o'clock, and I left at 6:25 PM.” Build that up every day. It's cumbersome. It's a pain.
Bruce Willey: This is where business owners and sophisticated taxpayers need to get their checkbooks out: Hire a good back office to keep track of your tax-related stuff. I believe high income filers have got to spend more time on their back office if they're going to survive the audits. Because here’s the bottom line: Audits are going to go down, but I think the ones they do are going to get nastier.
Garrett Gregory: Yeah. I agree with that. The IRS is going to dig into those selected audits they do. They’re going to use their algorithms to pick the messiest potential cases.
Bruce Willey: Sometimes I get asked if conditions at the IRS mean taxpayers and planners can get more “aggressive.” But I always tell them we don't use the word aggressive. A given approach or stance is either legal or illegal.
Garrett Gregory: Yep.
Bruce Willey: Taxpayers can engage in tax avoidance and minimization, but not tax evasion. And you have to document and justify your position. The IRS may disagree, and a tax court may disagree, but you're not going to wear orange pajamas when you’re done if you document and handle things correctly.
Garrett Gregory: Right. I tell all CPAs or return preparers they have to assume every return they do is going to be audited, and you should go into battle -- tax season -- with that mindset.
Garrett Gregory: I get it from my clients in audits or collections when I’m explaining to them what the rules are. “Oh, won't the IRS just take something less than what I owe and kind of just hit the reset button?” And I say, no. Why would they? They're the most powerful creditor in the free world. I give them the rules of the game – this is what the IRS can do, or will do, and this is what they won't do. And the clients get mad at me sometimes, thinking I’m being obstinate? But it's not me -- I'm just reading you the rules. This is how the game is played, and based on that, here's your best option. At least they're not freezing everything you’ve got and seizing your assets.
Bruce Willey: Keeping the IRS off a client’s back is underappreciated many times. But they’ve got a steamroller, and if they use it, you will feel it.
