IRS Delayed on Tax Refunds Partly Due to Massive Backlog

At the end of May 2022, the Internal Revenue Service (IRS) had a backlog of 21.3 million unprocessed paper tax returns, 1.3 million more than last year. This is according to a report by National Taxpayer Advocate (NTA) Erin M. Collins in Congress. The report also expressed concern about continued delays in processing tax returns filed on paper and their impact on taxpayer returns.

The IRS’s massive backlog is partly to blame for the paper returns

The report from the tax agency’s independent oversight body indicated that the IRS had failed to make progress in eliminating the paper backlog because its pace of processing paper tax returns is not ‘has accompanied with the new receipts. Of the 21.3 million unprocessed paper tax returns, 7.4 million companies are still awaiting a refund.

More than 75% of personal income tax returns result in refunds on which millions of taxpayers depend to pay for their basic living expenses. Delays in processing tax returns can cause financial hardship and frustration for many.

Taxpayers submitting electronically have done relatively well, with more than 85% of them running smoothly. However, processing paper tax returns remains a challenge for the IRS, as tax documents must be manually transcribed into their computer systems. In May, the IRS processed an average of about 205,000 individual income tax returns (Forms 1040) per week. The Form 1040 arrears at the end of May were 8.2 million, with millions more paper tax returns not yet classified or expected to arrive before the October 15 extended filing deadline. . The report indicated that the IRS should process more than 500,000 forms. 1040 per week to eliminate the delay this year.

Forms 1040 are just one component of the backlog in the processing of paper tax returns. Millions of business tax returns and amended tax returns, both individual and business, are also filed on paper. This year’s global portfolio has increased by 7% compared to last year.

Delays in tax refunds have also led companies to wait extended periods of time to receive tax withholding credits from employees for whom they are also eligible.

“That the backlog continues to grow is deeply worrying, mainly because millions of taxpayers have been waiting six months or more to receive their refunds,” Erin M. Collins advocate wrote in the report.

Ask for more funding to increase capacity

The NTA Purple Book contains a list of legislative recommendations on how to improve taxpayer services in the U.S. The NTA has recommended that the IRS provide additional funding to help improve taxpayer experience and modernize the IRS information technology systems. He noted that since 2010, the IRS budget has shrunk by almost 20% after adjusting for inflation. This was largely as a result of budget cuts that the IRS’s processing capabilities were limited.

For example, the IRS ended the 2021 filing season with a delay of 35.3 million returns that required manual processing. When taxpayers called the IRS for help, only about 11 percent reached a customer service representative (CSR), with retention time for taxpayers who spent an average of about 23 minutes. Old IRS computer systems also need desperate upgrades.

In 2021, the IRS raised about $ 4.1 trillion with a budget of about $ 11.9 billion, producing a remarkable average return on investment of about 345: 1. Additional funding for the IRS would not only improve service to taxpayers, but would almost certainly increase revenue collection.

The National Taxpayer Advocate (NTA) presents two reports to Congress each year: an annual report, delivered in January, and a goal report, delivered in June.

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