The Internal Revenue Service won't meet its goal of catching up on its backlog of millions of unprocessed tax returns by the end of this year, and the pile is expected to mount next year, according to a new report.
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"The delays in processing backlogged tax returns continue to burden taxpayers," said the report. "Our assessment of the remaining inventory and increased production levels indicates that the IRS will not meet all of its goals by the end of calendar year 2022 and will continue to have a backlog into the 2023 filing season."
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In March, the IRS announced an initiative, known as the "Get Healthy Plan," to address the continuing backlog of tax returns and other tax account work from 2021 during the 2022 filing season. The plan aimed to return the IRS to "healthy" inventory levels by the end of 2022, similar to what it experienced before the pandemic led to the closure of IRS offices for months in 2020. During the 2022 filing season, the IRS took several steps to address staffing needs at its tax-processing centers and its accounts management function. These efforts recently resulted in an increase in productivity levels in terms of the number of returns processed.
"However, our assessment of remaining inventory indicates that the IRS will not meet all of its goals by the end of calendar year 2022," said the TIGTA report. "As a result, the IRS will continue to have a backlog into the 2023 filing season."
TIGTA said it will continue to assess the IRS's efforts to address the backlog of tax returns and other tax account work and issue additional reports in 2023.
In addition to tax return backlogs, information returns have been a problem as well. As of Oct. 5, 2022, nearly 18.7 million information returns needed to be processed with a completion goal of Dec. 23, 2022. "Many of the same staff needed to process both individual and business tax returns will be shifted to process these information returns, further limiting the IRS's ability to get healthy," said the report.
The number of information returns is expected to grow exponentially with a new requirement from the American Rescue Plan Act of 2021 that services like PayPal, Etsy, eBay and Venmo will need to file Form 1099-K information returns with the IRS starting in January for their customers who have more than $600 in transactions, down from $20,000 previously. The American Institute of CPAs, the National Association of Tax Professionals, the National Taxpayers Union, Americans for Tax Reform, Padgett Business Services and other groups have asked for a delay in the requirements, and several lawmakers in Congress have proposed legislation to increase the threshold, but legislative fixes have not been included in the year-end package now making its way through Congress.
The IRS pointed out that it has been working hard to catch up on the backlog this year.
"The IRS has worked through more tax return inventory in the last 12 months than at any 12-month period in its history," the service said in a statement emailed to Accounting Today. "This unprecedented effort has been through an all-hands-on-deck approach, including reassigning more than 1,600 staff members to process paper (outside their normal roles), as well as hiring and onboarding 15,000 new staff in Fiscal Year 2022 and so far in Fiscal Year 2023. The data presented in TIGTA's report does not reflect our most recent progress. Much work has been done in the last several weeks and will continue to be done in the weeks ahead to make progress to address the remaining inventory and to ensure that the agency does not face such challenges in the future. These efforts will include moving toward more digitized processing of paper returns by investing in scanning millions of original returns upon receipt to decrease manual time spent on return processing."
