The Internal Revenue Service sat on refund money longer than it had to during the 2026 filing season, and a federal watchdog says that delay was deliberate. A new report describes an agency that used every day the rules allowed rather than releasing refunds to taxpayers who had not supplied a bank account for direct deposit. The result was a wave of notices, hundreds of thousands of phone calls and refunds that, for some households, arrived weeks later than they otherwise would have.
An Executive Order Rewrites How Refunds Move
The chain of events starts with Executive Order 14247, “Modernizing Payments To and From America’s Bank Account,” which directed federal agencies to move disbursements, including tax refunds, to electronic payment by default. The Treasury Inspector General for Tax Administration (TIGTA) examined how the IRS carried that order out during the 2026 season and found the agency went further than simply encouraging direct deposit. “To foster compliance with the EO, the IRS elected to hold refunds for the maximum time allowed for all tax returns that did not have direct deposit information when submitted,” TIGTA wrote in its report, dated Sept. 14.
The mechanism most taxpayers actually saw was the CP53E notice. According to the IRS’s own guidance on the notice, a taxpayer who receives one has 30 days from the notice date to add or update a bank account through an IRS online account, or to select one of a limited set of exceptions that still allows a paper check. Anyone who does neither is mailed a paper check six weeks after the notice date, and the online update can only be made once — if the bank rejects it, the IRS falls back to paper anyway. The same guidance also warns of a scam risk that grew alongside the rollout: recipients are told to check for a lock icon and a “.gov” address before using any link or QR code printed on the notice, a caution the IRS added after fraudulent copies of the letter began circulating.
What a stalled refund actually means: Each status message and each notice points to a different cause, and each cause has its own next step. Read the notice decoder in The IRS Refund Recovery Kit.
4.2 Million Notices, and Checks That Now Take Three Times Longer
TIGTA counted about 4.2 million individual taxpayers who received a CP53E notice during the filing season. The Government Accountability Office, reviewing IRS performance independently, reported the same figure, citing IRS officials who said the agency had sent roughly 4.2 million notices as of early May 2026. GAO’s review also measured what the shift cost in time: paper-check refund volume fell more than 80% by early April, from about 2,816,000 the year before to roughly 493,000, while the average time to issue a paper check nearly tripled, from 13 days in 2025 to 36 days in 2026.
TIGTA placed that slowdown against a broader shift already under way: 654 million of the 743 million tax payment and refund transactions the IRS processed during 2024 and 2025 — about 88% — already moved electronically before the CP53E push even began, according to the report. The CP53E notices targeted the remaining slice of filers whose returns still lacked banking details on file.
The Response: Calls, Online Fixes and a Few Hundred Thousand Exceptions
Not every taxpayer who got the notice went online to fix it. By late March, nearly 352,000 people had called the CP53E toll-free line, even though IRS representatives cannot update a bank account over the phone. More than 470,000 taxpayers made the change through their online accounts instead, and the IRS granted 300,537 exceptions to the electronic-payment requirement by March 30, letting that group keep receiving a paper check without penalty.
TIGTA traced some of the confusion to timing. The IRS did not issue a news release announcing the phase-out of paper refund checks for individual taxpayers until September 2025, one week before the executive order’s compliance deadline, and did not outline the notification process that became the CP53E notice until January 2026. Some recipients were not even due a refund — including people who owed the IRS money — which made a notice about direct deposit for a refund especially confusing to open.
Business Refunds Still Mostly Arrive on Paper
The shift toward direct deposit has been far more uneven for businesses than for individuals. TIGTA found that only about 37,000 of roughly 5 million business refunds, or 0.7%, were issued electronically, even though 97% of business tax payments were already made electronically during the 2024 and 2025 processing years. The IRS has updated dozens of business tax forms to collect banking information, TIGTA said, but the online-account tools available to businesses still lag well behind the ones built for individual filers, with no timeline given for closing that gap.
A Report With No Recommendations, and a Plain Assessment
The review, numbered 2026-IE-R-015, was labeled informational, meaning TIGTA issued no formal recommendations and the IRS filed no written response. Even so, the report closes on a direct assessment of what could have gone differently: more outreach to taxpayers and tax professionals before the notices went out “could have increased awareness of the EO and reduced confusion with the notice,” TIGTA said. Set beside GAO’s broader review of the 2026 filing season, the two oversight offices arrive at the same place from different angles: the IRS processed returns at close to the same rate as prior years, but the refunds it chose to hold moved slower, and later, than they used to.
When a Refund Stops Moving
The CP53E process only covers one specific reason a refund can stall: missing direct-deposit information on a return. It does not address a refund the IRS has already reclassified as issued but that never shows up in a bank account, or one that stalls for a completely different reason once the 30-day window closes. Those cases still require tracing the payment directly with the IRS, reading whatever follow-up notice arrives, and watching the same three-year deadline that applies to every refund claim.
The IRS Refund Recovery Kit is a 13-page kit with a notice decoder and the refund-trace steps built around Form 3911.
See the refund-trace steps and the 3-year deadline explained in The IRS Refund Recovery Kit.
AI-assisted research and drafting; reviewed by an editor.
