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.
And for those trying to find out about their status by contacting the IRS, well, good luck. IRS staffing has been a problem for a long while, as evidenced by a New York Times January tax return backlog story: “Treasury officials noted that in the first half of 2021, fewer than 15,000 employees were available to handle more than 240 million calls — one person for every 16,000 calls.”
What should be clearly understood is that any taxes owed or failing to file won’t be forgiven because the IRS didn’t send out these notices. The headline on the IRS news release announcing the notice suspension did its best to put the best face on a bad situation: “IRS continues work to help taxpayers; suspends mailing of additional letters.”
COVID-19 and lack of funding are cited by the IRS as the principal issues causing its problems, for which the Treasury department offers statistical support: IRS staffing is the same size as in 1970 despite the population growing by nearly 130 million people, the agency budget is 20% lower than in 2010, and the multiple additional responsibilities placed on the IRS by congressional COVID-19-related legislation.
On that basis, on March 10, the IRS and Treasury Dept. announced an “Aggressive Plan to End Pandemic Backlog This Year.” Another 10,000 employees will be hired; a 700-person “surge team” will work on principally paper returns, joining an already-established 800-member surge team working on unprocessed returns; paying a lot of overtime, and contracting out certain IRS tasks.
To deal with this as a taxpayer, two suggestions: If you have a question try to find the answer on the IRS website rather than contacting the IRS, and file your tax returns as soon as you can, doing so electronically rather than by paper. It may help you avoid finding yourself trapped in a tax-trouble corner.
This article first appeared in KnoxNews.