IRS had a backlog of nearly 12 million paper tax returns by Christmas, says watchdog

• The IRS had a backlog of almost 12 million paper tax returns from individuals and businesses as of Christmas 2020, according to a Treasury Inspector General for Tax Administration report issued Wednesday.
• That was a big jump from 2019. The Covid pandemic hobbled the agency's ability to sort through and process paper returns.
• Tax refunds were delayed for many as a result, the report said. Sending $1,400 stimulus checks may impede progress on clearing the backlog.

The IRS had a backlog of almost 12 million paper tax returns from individuals and businesses as of Christmas, according to areport from the Treasury Inspector General for Tax Administration.

As a result, many taxpayers may not have gotten refunds owed from last year's filing season, the watchdog said in its briefing, which was publicly released Wednesday.

The Covid pandemic hobbled the agency's ability to receive, sort, distribute and process paper tax returns, according to the report and agency officials.

Much of that process, which requires manual entry of data from tax returns, for example, isn't conducive to telework, they said.

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"In 2020, the IRS found itself in uncharted waters, as did the entire nation," Kenneth Corbin, commissioner of the wage and investment division at the IRS, wrote in response to the findings.

"The Covid-19 pandemic presented some of the greatest challenges to the IRS in its history, both in terms of being able to carry out 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, given persistent backlogs.

"We are hopeful the benefits of electronic filing have been reinforced with the public and that the experience of 2020 encourages traditional paper return filers to convert to electronic filing," he said in his response, dated March 8.

Paper delays

The processing delay represents a big increase relative to the prior year.

By mid-November, the IRS had a backlog of 4.7 million individual paper tax returns that needed processing, according to the report. By comparison, that backlog was just 183,000 returns at the end of 2019.

The IRS didn't respond to a request for comment on the progress to date on reducing the logjam.

Now, $1,400 stimulus checks and insufficient staffing may hamper the tax collector's ability to quickly address the backlog as this year's tax season is underway, according to the report. Last week, the IRS extended the filing season to May 17 from April 15.

This may delay refunds and some stimulus payments for individuals, the report said.

"Of particular concern is the continued challenges in hiring sufficient staff needed to both continue to work backlog inventory and process Tax Year 2020 tax returns at the same time," it said. "This could further affect taxpayers awaiting refunds and additional Recovery Rebate Credits associated with these Tax Year 2020 returns."

The IRS temporarily scaled back operations due to the pandemic by closing Submission Processing and Taxpayer Assistance Centers, discontinuing face-to-face operations and suspending telephone help lines, Corbin said.

Closing Submission Processing Centers hindered 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 shifted duties remotely to the extent possible, and all but 1,000 of the 11,000 Submission Processing Center employees had reported for in-person duty as of Feb. 24, Corbin said.

At the same time, the agency was also tasked with issuing prior rounds of pandemic relief, like $1,200 and $600 stimulus checks. The IRS issued more than 168 million CARES Act payments totaling $280 billion as of Dec. 18, Corbin said.

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

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