IRS holding over 35M unprocessed tax returns as backlog swells

The IRS is facing more than 35 million unprocessed tax returns, delaying refunds for many low-income Americans as the agency struggles to adopt a slew of changes related to coronavirus relief efforts, a government watchdog said Wednesday.

National Taxpayer Advocate Erin Collins said in a recent report the agency still needs to process about 17 million paper returns, in addition to the 16 million additional returns that have been suspended because they need to be processed manually. Another 2.4 million amended returns are also awaiting processing.

The unprocessed returns at the end of the 2021 tax season mark a 230% increase from last year, when the agency had a backlog of roughly 10.7 million returns. It represents a 377% increase from the end of the 2019 tax season. 

IRS officials are also calculating the earned income tax credit and the child tax credit – two tax credits for lower-income Americans that were expanded in President Biden's $1.9 trillion coronavirus relief package.

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"For taxpayers who can afford to wait, the best advice is to be patient and give the IRS time to work through its processing backlog," Collins wrote. "But particularly for low-income taxpayers and small businesses operating on the margin, refund delays can impose significant financial hardships. Not everyone can afford to be patient."

There are several reasons for the delays: The IRS was grappling with the herculean task of delivering millions of stimulus checks, while also trying to adapt major changes to the tax code in the middle of the filing season. The agency is also grossly understaffed; it has 20,000 fewer staff than it did in 2010, and its budget is roughly $11.4 billion – 20% less than it was in 2010, when adjusted for inflation, according to the Congressional Budget Office. 

Collins estimated that just 9% of a record-high number of calls to the IRS customer service representative service line was answered.

"When so few callers can get through to a telephone assistor, problems remain unsolved and taxpayer frustration mounts," she wrote.

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President Biden has proposed boosting funding for the agency by an extra $80 billion as part of a sweeping plan to crack down on tax evasion by wealthy Americans and large corporations.

The funding measure would be accompanied by new enforcement powers for the IRS, including disclosure requirements for people who own businesses that are not organized as corporations and for other high-income earners who could be shielding their income from the government.

The administration estimates that the plan could generate as much as $780 billion over the next decade by closing the gap between typical American workers and very high-earners who employed sophisticated methods to minimize their tax liability.

For more information on the Internal Revenue Service and the American taxing system, watch 'The Unauthorized History of Taxes' on Fox Nation.