The IRS is behind, beleaguered, and budget-challenged.
It has been a tough summer for the Internal Revenue Service (IRS) for a couple of reasons. While the agency has pushed initiatives to reduce the backlog and increase electronic filing, the backlog keeps growing, refunds are late, and consumers and IRS watchdogs are generally unhappy.
A recent audit by the Treasury Inspector General for Tax Administration (TIGTA) called for a “service-wide strategy” to address growth in business tax returns. The audit found the number of business tax returns has grown 63 percent since 2014—yet the agency has not implemented sufficient processes to address those returns or to notify businesses that file non-compliant returns. The same audit reports that the IRS decided to destroy 30 million paper documents in March 2021.
When the purge was reported by TIGTA, the IRS provided a brief statement titled, “Information Returns.” The IRS notes the document destroyed were not tax returns but material provided to the IRS by third-party payers—the kind of documents that are used to match with taxpayer documents to ensure the accuracy and compliance of the tax return. Although the matching documents are destroyed, the IRS reports their losses do not affect the original return or documents filed by the taxpayer.
In destroying the material, the IRS stated taxpayers would not be negatively impacted. The IRS points to “antiquated technology” at the heart of much of the processing challenges navigated by the IRS. Beyond staffing, communication, and process problems, paper returns continue to slow the speed and efficiency of the agency.
By June of this year, the IRS backlog was now at about 20 million returns. In its fiscal year 2023 Objectives Report to Congress, the National Taxpayer Advocate writes, “At the end of the day, a typical taxpayer cares most about receiving his or her refund timely. Thus, these processing delays are creating unprecedented financial difficulties for millions of taxpayers and outright hardships for many.”
In response to the report, the IRS responded that the number of returns unprocessed by the IRS had actually fallen below 20 million. While intended to be a rebuttal, the statement underscores the difficulties that continue to hamper the ability of the agency to carry out its mandate—or even effectively process tax returns and refunds for this tax season.
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