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30 Million Backlogged Paper Information Returns Destroyed By the IRS.

A report that was released earlier this week by the Treasury Inspector General for Tax Administration (TIGTA) states that the IRS has decided to destroy approximately 30 million paper information return documents. To be clear, an information return is a tax return that contains information about the taxpayer, however, does not state their tax liability. The report went on to say that the main reason that IRS has taken this route is due to its inability to make any sort of dent in its backlog of unprocessed paper returns.

Report Encourages E-Filing

The TIGTA report’s key focus was on how the IRS does not do nearly enough to encourage taxpayers to file electronically to limit the number of paper returns coming in. Business Tax Returns were also singled out in the report because the rate of business returns that are E-filed is much lower than the rate of E-filed individual returns.

crumbled paper

A Strategy Must Be Implemented

There were acknowledgments of the few E-filing initiatives that were taken by the IRS in the report, but TIGTA believes these strategies will only take the agency so far and states that the IRS needs a laid-out strategy.

“The backlogs of paper tax and information returns to be processed along with the inability to ship paper tax returns and/or retrieve paper tax returns from Federal Records Centers due to the pandemic demonstrate the need for the IRS to develop a Service-wide strategy to further increase e-filing,” said the report. “However, the IRS does not have a Service-wide strategy that identifies, prioritizes and provides a timeline for the addition of tax forms for e-filing nor an accurate and comprehensive list of tax forms not available to e-file.”

Paper Piled Up During the Pandemic

When the Covid Pandemic hit in 2020, several millions of paper tax returns and other paper documents began to pile up at every IRS office & facility. Since then, the IRS has had employees working overtime and has actively been trying to hire more employees to combat the amassed paper. In another report released by TIGTA, IRS Commissioner Rettig stated that the IRS is still dealing with unprocessed paper returns that are numbered in the millions.

The paper trend is a familiar one for the IRS as they continue to receive large quantities of paper filed tax information returns, which ultimately costs the agency a lot of money and resources year after year. According to TIGTA, the IRS spent nearly $230 million on processing paper returns in the year 2020.

Millions of Information Returns Destroyed

The continuing flow of paper flooding the IRS combined with ineffective strategies, has caused the agency to destroy 30 million paper information returns. Experts believe they destroyed these returns to speed up the timeframe on the backlog, as it will allow them to focus more on other tax returns.

“This audit was initiated because the IRS’ continued inability to process backlogs of paper-filed tax returns contributed to management’s decision to destroy an estimated 30 million paper-filed information return documents in March 2021,” said the report. “The IRS uses these documents to conduct post-processing compliance matches to identify taxpayers who do not accurately report their income.”

Wrap Up

Overall, this should not affect too many taxpayers as the documents shredded are purposed to assist the IRS’s Automated Underreporter Program to identify those not accurately reporting their income.  Additionally, the IRS is only speeding up the timetable of making these tax forms purposeless as once the tax year ends the information returns (such as Form 1099-MISC) can no longer be processed due to system limitations.

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