IRS has yet to process millions of individual, business tax returns from last filing season

The notoriously underfunded and understaffed IRS is sitting on an unprocessed backlog of millions of both individual and business tax returns, as the start of the 2021 tax season rapidly approaches.

Erin M. Collins, who was sworn in as the National Taxpayer Advocate in late March, noted in an annual report that as of November there were still 7.1 million unprocessed individual returns from last tax season, as well as 2.3 million unprocessed business returns. Some of those returns dated back to April 15.

Those backlogs remain even as the 2021 filing season is expected to start within weeks, which may pose problems for the agency.

“The challenges created by the COVID-19 pandemic will continue through the 2021 fi­ling season and possibly for months longer, affecting both the IRS and taxpayers,” Collins wrote in the report to lawmakers.

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The IRS was faced with serious challenges last year – with the coronavirus pandemic causing the agency to operate with limited staffing throughout tax season.

And even though the White House ultimately delayed filing deadlines until July, the IRS was also doling out 160 million economic impact payments called for under the CARES Act during the same months.

Taking those factors into consideration, Collins said the agency did a good job.

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However, the agency’s “inability to timely open and process” about 16 million paper returns led to delays, as did fraud detection filters, which have “high false positive rates.”

The report noted that the IRS could have been more forthcoming with delay-related information.

On the bright side, Collins said she believes the IRS was able to learn from challenges encountered in 2020 and will be able to move forward with more efficiency.

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But there are nagging systemic problems that continue to weigh down the IRS, she added.

Since fiscal 2010, Collins said Congress has reduced the agency’s budget by 20% accounting for inflation, while staffing levels have declined at the same rate.

Both problems have hindered the IRS’ ability to serve taxpayers. For example, 75 million calls went unanswered in fiscal 2020, Collins said.

The agency has for years talked about the need to update and modernize infrastructure, which Collins said dates back to the 1960s.