A growing backlog of unprocessed tax returns now stands at 35 million, leading to persistent refund delays for millions of taxpayers, the National Taxpayer Advocate said in a recently released report. This represents an increase in the IRS backlog of unprocessed returns from the May when it was still Hold 31 million returns.
Some taxpayers recently told CBS MoneyWatch that they had been waiting months for their refunds and had no way of knowing when their tax return might be processed or when they could expect their refund. With the typical refund exceeding $ 2,800 per taxpayer, a delay could create financial hardship, especially for the many households that rely on their refunds to pay bills.
The backlog with the IRS comes after a "perfect storm" that has "perhaps had the toughest filing season for taxpayers, tax professionals and the IRS ever," wrote National Taxpayers Attorney Erin M. Collins in Wednesday's report. The pandemic caused the IRS to suspend some of its operations while several new tax initiatives, such as the three rounds of stimulus checks distributed by the tax authority, gave it more responsibility from Congress.
"The impact of the pandemic on IRS operations – and therefore taxpayers – has been significant," noted Collins. "The historically high number of IRS tax returns requiring manual review means that most individual taxpayers in this group and many corporate taxpayers are not getting timely refunds."
Some people could possibly get through the delay, Collins noted, but it could "pose significant financial difficulties," she said, to low-income taxpayers and small businesses with little leeway.
The backlog in returns represents a four-fold increase from two years before the pandemic, the report found. Unfortunately, taxpayers won't get their tax returns until the IRS can manually process the 35 million tax returns waiting to be reviewed, she added.
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Why the delays?
The unprecedented backlog started in March 2020 when the pandemic caused the IRS to close its offices for health and safety reasons – in the middle of the 2019 tax return tax season. Paper tax returns filed for the 2019 tax year were kept in trailers, until IRS staff could reach them.
At the beginning of the tax season in 2021, the IRS was still processing these paper returns from the 2019 tax year. That meant she was already busy with an existing backlog when she started accepting tax returns for 2020 in February.
At the same time, the IRS coped with Tax changes incorporated into law this year by Congress. Many of these changes relate to pandemic relief efforts, such as Recovery Rebate Credit, which allows people to claim extra stimulus money when they have received too little. But if taxpayers have filled out this credit incorrectly, their forms will be flagged for manual review by IRS staff, which has added to the backlog.
New regulations for the Income Tax Credit and Child Tax Credit are also causing problems in the system as the government stimulus package signed in December came too late for the IRS to adjust its forms and computer systems.
The stimulus package provisions allow taxpayers to claim the credits based on their 2019 income instead of their 2020 income if that would have been more convenient for them – but such "reviews" require IRS staff to review 2019 income.
All of these issues and more have resulted in "the unprecedented number of returns that require manual verification, which is slowing the issuance of refunds," noted Collins.
Backlog requires manual processing
The manual processing of 35 million IRS backlog returns requires an IRS agent to review or review each one before moving on to the next step, noted Collins.
The backlog includes:
- 16.8 million paper tax returns to be processed
- 15.8 million returns paused for further review
- 2.7 million changed returns that still need to be processed
Of the 15.8 million returns that require further verification, more than 10 million have been withdrawn due to an error that can be as simple as an addition or subtraction error. Even so, an IRS agent has to manually review each of these returns to review the errors and fix them, noted Collins.
But a "large number" of incorrect statements relate to the "look back" problem with the tax credit, as well as discrepancies between the taxpayer's claimed recovery credit and the IRS's own records. This could happen, for example, if a taxpayer doesn't accurately remember the amount of stimulus money received and enters the wrong number, Collins said.
Telephone service is not a "luxury"
With so many returns to the IRS, it might come as no surprise that the number of calls to the IRS and visits to its website has skyrocketed this year – with the number of calls being four times the number of calls to the agency In 2020, said Collins.
At the height of the filing season this year, the IRS was getting about 1,500 calls per second, added Collins.
The IRS was unable to keep up with demand, resulting in "historically poor service," the report said.
For example, the toll-free number for individual income tax services received 85 million calls, but only 3% of the callers reached a customer service representative, she noted. Collins also highlighted the "Where's My Refund" tool on the IRS website as requiring improvement, noting that in many cases the tool does not provide an estimate of when a taxpayer might receive their refund or explanation of the withholding.
"From the taxpayer's perspective, the IRS's inability to answer calls or provide replies creates frustration and undermines a fundamental right of the taxpayer – namely, the right to be informed," said Collins, adding that she urged Congress to increase funding for the IRS to improve its ability to answer and handle calls.
She added, "In my opinion, telephone assistance is not just an option or a luxury."