TAS Report to Congress That IRS Faces 35 Million Unprocessed Tax Returns As Backlog Swells

The Internal Revenue Service closed the most recent filing season with more than 35 million in unprocessed tax returns, as the agency’s backlog grew markedly amid a crush of challenges related to the pandemic and economic relief efforts, a government watchdog said Wednesday.

 

Erin Collins, the National Taxpayer Advocate, said in her report that about 17 million paper tax returns are still waiting to be processed and approximately 16 million additional returns have been placed on hold because they require further review manually. Another 2.7 million amended tax returns have not been processed.

This backlog represents a fourfold increase from 2019, the most recent year before the coronavirus pandemic, when the IRS closed its filing season with 7.4 million unprocessed returns, according to the report. These numbers reflect the IRS backlog as of May, and the agency may have made progress reducing it since then. The IRS backlog amounted to 11 million at the end of the 2020 filing season, fewer than a third of the current number of unprocessed returns.

As a result of the backlog, millions of taxpayers have to wait much longer for their tax refunds. In the current filing season, 70 percent of individual income tax returns included refunds, with the average refund amounting to about $2,800. Refunds are also important for delivering tax credits to low-income Americans, while some other taxpayers need their returns to be processed to proceed with things such as mortgage applications.

 

The agency’s struggles come as President Biden and Democrats in Congress prepare to give the IRS even more major responsibilities, including implementing a new paid family leave benefit, a clean-energy tax credit program and new child-care subsidies.

“Processing delays matter greatly because most taxpayers overpay their tax during the year via wage withholding or quarterly payments and are entitled to receive refunds,” Collins, the taxpayer advocate, said in her report.

An IRS statement released late Wednesday disputed the taxpayer advocate’s methodology, arguing it does “not reflect the current situation at the IRS.” The statement said many of the returns will require further correction, but are on track to be sent. The statement also said some of the returns counted by the advocate “does not necessarily reflect unprocessed tax returns,” citing as many as 2.1 million individual and business tax returns are related to identity theft cases. Those “may or may not be legitimate tax returns,” the statement said.

IRS Commissioner Charles P. Rettig also told the Senate Finance Committee earlier this month that the agency had processed more than 137 million individual income returns and sent refunds totaling more than $281 billion.

The Overwhelming Majority of the 35 Million Unprocessed Returns are for the 2020 Filing Season That Were Filed in 2021.

The taxpayer advocate chronicled a “perfect storm” of challenges facing the IRS as it struggles to recover from the pandemic and implement a wide array of changes related to President Biden’s economic relief efforts.

Despite severe cuts over the last decade, the IRS was tasked with sending a third round of economic relief payments, changing rules around unemployment benefits, and new guidelines for eligibility around other tax credits. Many of these changes were ordered in the middle of the filing season, compounding the challenge. 

Republicans led the cuts to the IRS budget, but Biden has pushed to increase the agency’s funding by as much as $80 billion to crack down on tax cheats. A bipartisan infrastructure deal reached with the White House earlier this month includes as much as $40 billion in additional funding for the agency, although it is unclear when that may pass.

Calling for quick change, the taxpayer advocate report also stresses that the IRS took unusually long to process Americans’ 2019 income tax returns.

“We can understand and articulate the challenges the IRS faced over the past year, but for individuals and businesses that waited nine months, 12 months, or longer to receive their refunds, the reality of the long delays was incomprehensible and in many cases, financially distressing,” 

Collins writes in the report. “Taxpayers cannot experience similar challenges in future filing seasons. We cannot allow the agency to face the staffing and technology limitations it has experienced this past year.”

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Source:

The Washing Post