Contact the IRS" Is No Longer an Answer. It Barely Ever Was.

Two days ago, the Government Accountability Office published a report that should be required reading for every SBA lender, underwriter, and fintech operator in America.

The IRS lost approximately 25% of its total workforce in 2025. Its IT department shed 40% of staff. The agency lost 80% of its executives. Its procurement office — the team that handles contracts for AI tools — lost 40% of staff. The chief technology officer suspended 10 of 11 AI projects after half of the team departed. The research and analytics unit lost 63 AI-focused employees.

The IRS wanted to modernize with AI. Instead, it lost the people who know how to do it.

If you’re a lender who depends on IRS data to close loans — and if you’re reading this newsletter, you almost certainly are — this has direct implications for your business. Processing times aren’t getting shorter. The phone lines aren’t getting better. The bottleneck that already existed just got structurally worse.

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The numbers are worth sitting with.

The IRS had 126 active AI use cases as of last summer. Voicebots handled 4.8 million calls. Chatbots resolved 450,000 inquiries — 42% of those users never spoke to a human. The agency was deploying Salesforce’s Agentforce across multiple divisions. It was the most ambitious modernization push the IRS had attempted in decades.

All of that infrastructure is now at risk. The GAO says some AI deployments “may have to stop” because of staffing constraints. The IRS may no longer use an AI model focused on prioritizing tax returns for audit, because it doesn’t have enough staff to conduct the audits. The voicebot and chatbot systems that handled 25 million sessions last filing season are maintained by teams that have been gutted.

For lenders, the takeaway is simple: the IRS is not going to get faster. The phone lines are not going to improve. “Call the IRS directly” — which is already the default answer when transcripts come back blank — is becoming a worse answer every month.

In January, our founder wrote about the three layers of tax data infrastructure — verification, discovery, and servicing — and why nobody owns the full stack. (Read the original post here.)

Eight weeks later, the thesis hasn’t just held up. The GAO report accelerated it.

Here’s what’s changed since January:

The “contact the IRS” problem got structurally worse. In January, he quoted a national leader in 504 SBA lending quoted: “They just say ‘no records’ unless we approach them. Usually, it ends right there. We just have to tell borrowers to call the IRS directly.” With 25% fewer IRS employees and 40% fewer IT staff, that dead end is now a brick wall. Average hold times were already 30+ minutes. The teams maintaining the phone systems lost key staff. This is not cyclical — it’s structural.

Small-dollar loans now require large-loan underwriting. The E-Tran policy updates for SBA lenders in 2026 mean more paperwork on every deal. Same teams, more documentation requirements. The lenders I’ve been talking to this month are all dealing with the same reality: compliance burden went up while their headcount stayed flat. The tax data infrastructure they rely on needs to be faster, not slower.

Discovery is converting deals, not just saving time. When we introduced the discovery layer in January — the pre-verification intelligence that tells you WHY transcripts are missing, not just that they’re missing — it was a concept. Now it’s in production. In the last 8 weeks, we’ve resolved dozens of “no record found” cases that would have sat in limbo under the old workflow. Entity filed under the wrong type, unfiled years, state-inactive businesses still operating. Each one is a deal that closes instead of dying.

We went from 20+ lender clients to 60+. The growth since January has been driven almost entirely by the integrated stack thesis: lenders don’t want three vendors for verification, discovery, and servicing. They want one workflow. We’re now processing same-day transcripts, powering pre-verification intelligence through our ClearFirm partnership, and handling back-filing and amendments when issues surface — all in one platform.

We shipped more in March than in any month since launch. Here’s what went live:

Portal & Processing

🟢 Rebuilt moderntax.io from the ground up. New site, new positioning, new documentation. If you haven’t visited since January, it’s a different product.

🟢 Transcript ordering portal with full API access. Your processing teams can now order and retrieve tax transcripts programmatically—three free orders to start. Find out more here.

🟢Sign integration for 8821 consent. This one’s a big quality-of-life improvement. Signed 8821 forms now auto-pull into the portal the moment a signer completes — no more emailing PDFs. Processors can download signed 8821s directly from the request detail page. We also built daily reminder emails for unsigned 8821s and bulk CSV upload with auto-detect for signer emails.

🟢 Entity-level progress tracking. Your dashboard now counts entities (EIN/SSN) rather than just requests. Each request shows entity progress as a fraction — “1/2”, “3/5” — so you know exactly where things stand without calling us.

API & New Products

🟢 Employment & Income Verification API. Full W-2 intake and result polling — live in production with our first integration partner. Documentation at moderntax.io/docs.

🟢 Payment Verification API. New endpoints for IRS payment confirmation via 8821 consent and Record of Account. Same-day verification that quarterly estimated tax payments have been posted at the IRS. Includes consent authorization, ROA pulls, payment confirmation, quarterly monitoring, and early warning alerts for lien filings, entity election mismatches, and IRS letters. This product is live and in pilot with S-Corp-focused platforms. Full docs at moderntax.io/docs.

Coming Soon

🟡 ModernTax AI agents. We’re building voice and workflow agents that navigate IRS systems on behalf of our customers. More on this next month.

🟡 1120S payment processing + state payment support. Filing and paying federal and state taxes directly through the ModernTax platform. H2 2026.

We’re on the road this spring and summer. If you’re attending any of these, let’s connect in person:

Apr 27-29 — NAGGL Spring Conference, Orlando, FL (Hyatt Regency Grand Cypress)

May 12-14 — nCino nSight, Charlotte, NC

May 17-20 — NADCO Spring Summit, Arlington, VA (Renaissance Arlington Capital View)

Jun 15-17 — NACLB Annual Conference, Miami Beach, FL (Fontainebleau)

Aug 17-19 — America East SBA Conference, National Harbor, MD (Gaylord National Resort)

Reply to this email if you’ll be at any of these — happy to set up time to meet or do a live portal walkthrough at your booth.

The vendors who handle one layer of the tax data stack will keep handling one layer. The infrastructure that spans verification, discovery, and servicing — with AI augmenting each — is what financial institutions will embed.

The GAO report didn’t create this dynamic. It confirmed it. The IRS is shrinking. The compliance burden is growing. The lenders who build their workflows around an integrated tax data infrastructure will close deals faster. The ones who don’t will keep hearing “contact the IRS” and waiting 60-90 days.

Discovery is the unlock. Without it, verification is just data retrieval. With it, you’re solving the actual problem: getting loans closed.