According to the independent monitoring report for the tax agency, the IRS has not been able to reduce its paper backlog because the rate at which it processes paper tax returns has not kept up with the volume of new receipts. 7.4 million firms are still waiting for their refunds out of the 21.3 million unprocessed paper tax returns.
Millions of taxpayers rely on refunds from more than 75% of filed individual income tax returns to cover their essential living costs. For many people, processing tax returns slowly can lead to financial hardships and dissatisfaction.
Electronic tax filers have done reasonably well, with more than 85% of them reporting no issues. However, because the tax forms must be manually entered into the I.R.S.’s computer systems, processing paper tax returns continue to be difficult.
The IRS processed about 205,000 individual income tax returns (Forms 1040) on average per week in May. By the end of May, there were 8.2 million Form 1040s still awaiting classification, and millions more are anticipated to come by the extended filing deadline of October 15.
According to the report, to clear the backlog this year, the IRS would need to process well over 500,000 Forms 1040 per week.
The backlog in processing paper tax returns includes several different Forms 1040. Millions of modified tax returns, both for individuals and businesses, are also filed on paper.
In comparison to the previous year, the backlog has grown generally by 7% this year.
Businesses that are entitled to Employee Tax Retention Credits have had to wait a long time to collect them as a result of delays in tax returns.
Millions of taxpayers have been waiting six months or longer to receive their refunds, so the fact that the backlog is still growing is quite troubling, according to advocate Erin M. Collins, who wrote in the study.
Demands More Money to Increase Capacity
To enhance taxpayer services in the United States, several legislative ideas are included in the NTA’s Purple Book. The NTA has proposed giving the IRS more money to enhance the taxpayer experience and update the IRS’s IT infrastructure.
Inflation-adjusted cuts to the IRS budget since 2010 have been noted to be close to 20%. The IRS has restricted processing capabilities, which was partly due to budget cuts.
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As an illustration, the IRS had a backlog of 35.3 million returns that needed to be processed manually at the end of the 2021 filing season. Only around 11% of taxpayers who called the IRS for help were able to speak with a Customer Service Representative (CSR), and those who did had to wait for an average of 23 minutes on hold. The outdated IT infrastructure of the IRS is also in dire need of replacement.
On a budget of around $11.9 billion, the IRS brought in about $4.1 trillion in 2021, yielding an outstanding average return on investment of about 345:1. Improved taxpayer services and almost certainly more tax collections would result from increased financing for the IRS.
Each year, the National Taxpayer Advocate (NTA) delivers two reports to Congress: an Annual Report in January and an Objectives Report in June.
