The Internal Revenue Service’s closure during the COVID-19 pandemic kicked off a series of issues and delays, the effects of which still linger today. In the most recent update, GOP lawmakers are investigating potential misconduct after the IRS reportedly destroyed 30 million tax filing documents.
Let’s take a closer look at the situation, how it got to this point, and what it means for your 2022 tax return.
The IRS Tax Return Backlog
The IRS was already struggling with an increased workload, decreased staff, and insufficient budget before the COVID-19 pandemic, and the closure only escalated the problem. The organization also had to distribute stimulus checks and adjust to new tax code changes on top of their regular workload.
The IRS announced its plan to resolve the backlog earlier this March. There were over 20 million unprocessed tax returns at the time that they planned to resolve by the end of the year. According to IRS Commissioner Charles Rettig, “If the world stays as it is as of today, we will be what we call healthy by the end of calendar year ’22, and enter the ’23 filing season with normal inventories — healthy through the eyes of the taxpayer.”
The plan consisted of hiring ten thousand new employees by the end of the year, streamlining the onboarding process, forming specialized teams to handle new and amended returns, and shifting employees to the most overloaded processing centers.
On June 21st, the IRS announced that it would finish processing all error-free originally filed individual tax returns received in 2021 by the end of the week. “IRS employees have been working tirelessly to process these tax returns as quickly as possible and help people who are waiting on refunds or resolution of an account issue,” said Rettig. “Completing the individual returns filed last year with no errors is a major milestone, but there is still work to do.”
However, tax returns received this year continue to add to the backlog. Conflicting reports between the National Taxpayer Advocate and the IRS place the number of unprocessed returns at either 21.3 million or closer to 19 million.
IRS Audit Report
An audit report released on May 4th shows that the challenges are not over for the IRS. According to the Treasury Inspector General for Tax Administration (TIGTA), “This audit was initiated because the IRS’s continued inability to process backlogs of paper-filed tax returns contributed to management’s decision to destroy an estimated 30 million paper-filed information return documents in March 2021. The IRS uses these documents to conduct post-processing compliance matches to identify taxpayers who do not accurately report their income.”
Information return documents are submitted to the IRS by employers, financial institutions, and other payers to report taxable payments they have made. The IRS compares the information on these documents with the information on taxpayers’ tax returns to check for consistency.
In response to the report, the IRS stated, “99% of the information returns we used were matched to corresponding tax returns and processed. The remaining 1% of those documents were destroyed due to a software limitation and to make room for new documents relevant to the pending 2021 filing season. There were no negative taxpayer consequences as a result of this action. Taxpayers or payers have not been and will not be subject to penalties resulting from this action.”
The IRS also claims that system limitations contributed to the decision to destroy the documents. The response continues, “System constraints require IRS to process these paper forms by the end of the calendar year in which they were received. This meant that these returns could no longer be processed once filing season 2021 began. Not processing these information returns did not impact original return filing by taxpayers in any way as taxpayers received their own copy to use in filing an accurate return.”
In a letter to the IRS on June 8th, GOP lawmakers stated that they were investigating the incident for potential misconduct. They requested that the IRS provide all documents and communications related to the destruction of the tax documents and the plan to implement the audit report’s recommendations, in addition to legal authority supporting the decision to destroy the 30 million information return documents.
The letter states, “Committee Republicans are concerned that the destruction of these documents might slow down already inefficient processing procedures and hurt American taxpayers left unaware that the IRS destroyed documents already entrusted into its care.”
How to Approach the 2022 Tax Season
With the upheaval in the IRS and the delayed tax returns from last year, navigating the 2022 tax season may seem daunting. As your go-to national tax experts, the team at National Tax Group has a few tips to set you up for success.
File Electronically
If you’re looking for speed, accuracy, and reliability, e-filing is the way to go. E-filing your taxes greatly reduces processing time, with e-filers receiving their returns in an average of 21 days compared to the several-month wait for taxpayers filing paper returns through the mail. The online form also auto-checks for common errors and requires filers to fix them before submitting, preventing extensive corrections and amendments.
Consult With a Tax Expert
For the best results on your 2022 tax returns, hire a national tax expert to do the job right. National Tax Group is a team of trained experts with years of experience navigating complex situations just like this. We’ll make sure your tax documents earn you the maximum benefits and savings, submitted in the optimal format with pinpoint accuracy. Our team has over 20 years of combined experience saving our clients money through R&D Tax Credits, cost segregation studies, 179D deductions, and other underutilized areas of the tax code. Contact us today for a free assessment!
