IRS backlog may back taxpayers into a corner

The IRS backlog of unprocessed individual and business tax returns is backing millions of American taxpayers into a corner in which they may find themselves trapped, particularly if they’re out of tax compliance and owe more money in taxes.

At the end of 2020, the IRS had a backlog of some eight million small business paper tax returns, according to a CNBC report. In 2021, the backlog reached 35 million individual and business tax returns, said the IRS National Taxpayer Advocate.

“The IRS finished the filing season with a backlog of over 35 million individuals and business income tax returns that require manual processing — meaning that employee involvement is generally required before a return can advance to the next stage in the processing pipeline. The backlog includes about 16.8 million paper tax returns waiting to be processed; about 15.8 million returns suspended during processing that require further review; and about 2.7 million amended returns awaiting processing,” Erin Collins, the IRS’s National Taxpayer Advocate, said in her annual report to Congress released in Jan. 2022.

By the start of the 2022 tax season, news reports put the backlog at about 10 million individual and business returns.

Issues for businesses in this unfolding scenario range from not knowing how, when, or if, their return will be accepted by the IRS; perhaps finding themselves on the hook for additional tax for which they can’t plan; or delays in receiving tax breaks under the CARES Act and American Rescue Plan, both passed by Congress to help for businesses dealing with the government-enforced and non-governmental-caused effects of COVID-19.

Tagged #JimmyTalk