Unclear instructions, limited awareness plagued CP53E rollout, TIGTA says

A government watchdog has confirmed what many CPAs and their clients experienced during the 2026 filing season: The IRS’s CP53E notices created confusion among taxpayers as the agency pushed them toward electronic refunds and away from paper ones under an executive order.

About 4.2 million individual taxpayers received CP53E notices directing them to add or update bank account information through their IRS online accounts to receive refunds by direct deposit, the Treasury Inspector General for Tax Administration (TIGTA) said in a report dated Monday. If taxpayers took no action after 30 days, the IRS said it would issue a paper check after six weeks.

The IRS held some refunds in an effort to encourage taxpayers to provide direct deposit information, TIGTA said. “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,” the report said.

Taxpayer awareness of the IRS’s paperless-payment initiative “may have been low” when filing season began, TIGTA said. The IRS did not issue a news release announcing the phaseout of paper refund checks for individual taxpayers until September 2025, one week before the executive order’s compliance deadline.

The IRS did not outline a notification process — which eventually became the CP53E notice — until January 2026, the report said. Recipients then faced unclear instructions and a process that some found burdensome, the report said.

The notices went to taxpayers who filed returns without banking information, the report said. But taxpayers who were not due a refund or who even owed money to the IRS were confused because the notice said the information was needed for a direct deposit for a refund.

“More public outreach to stakeholders and taxpayers could have increased awareness of the EO and reduced confusion with the notice,” TIGTA said.

Some taxpayers had to create IRS online accounts, verify their identities through a third-party vendor, open bank accounts, or seek assistance from Taxpayer Assistance Centers before receiving refunds, TIGTA said. Some refunds may have been delayed as a result.

The report also provided new details on the scale of the initiative. As of late March, the IRS reported that nearly 352,000 taxpayers had called the CP53E toll-free line, while more than 470,000 taxpayers had updated bank account information through their online accounts. The IRS had also granted 300,537 exceptions to the electronic payment requirements by March 30.

TIGTA highlighted a continuing challenge for business taxpayers: While 97% of business tax payments were made electronically during processing years 2024 and 2025, only 37,000 of about 5 million business refunds, or 0.7%, were issued electronically.

TIGTA said the IRS has updated dozens of business tax forms to collect banking information but noted that business online-account capabilities lag behind those available to individual taxpayers.

Despite the challenges, TIGTA said the IRS has made progress toward electronic transactions. During processing years 2024 and 2025, 654 million of 743 million tax payment and refund transactions, or 88%, were conducted electronically.

The report was informational only, included no recommendations, and did not contain an IRS response.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.