Nearly 24 million taxpayers are still waiting for the Internal Revenue Service to process their tax returns from last year, a far higher number than the agency previously reported, and many refunds were held for 10 months or more.
The inventory of unprocessed returns and related correspondence was provided by the IRS Taxpayer Advocacy Service to congressional tax drafting committees. The delay will likely slow service further in the 2022 filing season; The Treasury Department, the parent agency of the IRS, warned in January that it expected its response to be poor this year. The backlog of work left over from last year, according to three people who spoke on condition of anonymity because they were not approved to speak publicly, comes as the tax agency struggles to hire and train new staff to clear the logjam. In response, the IRS is considering suspending tax collection and waiving some penalties.
The issues also sparked bipartisan angst on Capitol Hill, though lawmakers once again found themselves divided on exactly how to improve the agency's performance. A group of 30 Republicans described the situation as "untenable" in a letter sent this week to Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig. But some in the GOP are simultaneously working to block any new federal aid that could help the beleaguered agency, a stance that drew sharp criticism from Democrats on Saturday. “For decades, Republicans have starved the IRS of funds, and now American taxpayers are paying the price,” said Rep. Richard E. Neal (D-Mass.), chairman of the House Ways and Means Committee focused on taxes, citing statistics uncovered by The Washington Post. “The backlog of tax returns is just one symptom of the fundamental problem that has been plaguing the IRS for far too long: inadequate resources.”
IRS productivity plummeted during the coronavirus pandemic as thousands of employees worked from home for months without access to returns, audits and other business, difficulties that followed years of budget cuts. The federal stimulus measures also increased the agency's workload as they emphasized delivering aid money to millions of Americans. Paper returns took the biggest hit, as mail piled up on trucks outside shuttered offices for months. Adding to the challenges, a new IRS inspector general report this month found that the agency continues to suffer from severe hiring shortages, inefficient practices and outdated equipment. That includes mail processing issues, as their systems have "outdated dust collectors" that cause paper jams. Poor scanners, meanwhile, meant the IRS lost $56 million last year due to "untimely check deposits" as the agency was unable to determine whether the envelopes it received contained checks. Starting Jan. 28, the count of pending individual and business returns that require what the IRS calls "manual processing," an operation in which an employee must take at least one action instead of relying on an automated system to move the case, reached 23.7 million, according to data from the taxpayer advocate. The number includes 9.7 million paper returns awaiting processing; 4.1 million who were suspended for errors with stimulus payments, pandemic relief or other issues; 4.1 million amended returns; and 5.8 million pieces of mail awaiting action between the agency and taxpayers to resolve problems before returns are completed.
In January, National Taxpayer Advocate Erin Collins reported a backlog of at least 10 million returns based on IRS data. Meanwhile, an IRS official said the agency counts inventory from last year's filing season at about 6 million paper returns for individual taxpayers. Both numbers are much higher than the raw returns the IRS faced before the pandemic; In the past, the agency typically carried 1 million or fewer returns to the next filing season.
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