IRS was nearly 12 million paper tax returns backlog by Christmas, Watchdog says

Samuel Corum / Bloomberg via Getty Images

The IRS was down nearly 12 million paper tax returns from individuals and businesses by Christmas, according to a report by the Treasury Department’s General Inspector of Tax Administration.

As a result, many taxpayers may not have received refunds from last year’s filing season, the watchdog said in its briefing, publicly released on Wednesday.

The Covid pandemic affected the agency’s ability to receive, sort, distribute, and process paper tax returns, the agency’s report and officials said.

Much of this process, which requires manual entry of data from tax returns, for example, is not conducive to teleworking, they said.

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“In 2020, the IRS was in uncharted waters, as was the entire nation,” said Kenneth Corbin. The commissioner of the IRS Payroll and Investment Department wrote in response to the findings.

“The Covid-19 pandemic presented some of the greatest challenges for the IRS in its history, both in fulfilling our mission and in protecting the health and safety of taxpayers and our own workforce,” he added.

Corbin also urged taxpayers to file an electronic tax return this year as the arrears persist.

“We are confident that the benefits of electronic filing have increased among the public and that the 2020 experience will encourage traditional paper returners to move to electronic filing,” he said in his March 8 response.

Paper delays

The processing delay has risen sharply compared to the previous year.

By mid-November, the IRS reportedly had 4.7 million individual paper tax returns to be processed. For comparison: at the end of 2019 this backlog was only 183,000 returns.

The IRS says it has made “significant strides” in reducing this blockade. According to the agency, 2.4 million individual tax returns had been in the processing pipeline by March 5, prior to 2021.

The IRS did not respond to a request for comment on progress to date in reducing congestion.

Now, according to the report, $ 1,400 economic reviews and under-staffing could affect the tax collector’s ability to quickly clear the backlog during this year’s tax season. Last week the IRS extended the filing season from April 15th to May 17th.

This could delay refunds and some incentive payments for individuals, the report said.

“Of particular concern are the ongoing challenges in recruiting enough staff to both continue to process inventory and process tax returns for the 2020 tax year at the same time,” it said. “This could further impact taxpayers waiting for refunds and additional refund credits associated with those 2020 tax returns.”

The IRS has temporarily shut down operations due to the pandemic by closing the filing processing and taxpayer assistance centers, closing personal operations, and closing phone hotlines, Corbin said.

The closure of filing processing centers hampered the agency’s ability to process incoming mail such as paper tax returns, some payments and correspondence in a timely manner, he said.

The IRS has outsourced tasks remotely as much as possible, and all but 1,000 of the submission processing center’s 11,000 employees signed up for personal service on Feb. 24, Corbin said.

At the same time, the agency was also hired to run previous rounds of pandemic relief such as stimulus checks valued at $ 1,200 and $ 600. The IRS made more than 168 million CARES Act payments totaling $ 280 billion on Dec. 18, Corbin said.

The IRS is also looking to hire additional staff for the 2021 tax season and remove bottlenecks, he added.

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