Pandemic led to IRS backlog of 8 million paper business tax returns

Zach Gibson | Getty Images News | Getty Images

The Covid-19 pandemic caused a backlog of nearly 8 million paper business tax returns with the IRS, according to a report released Tuesday by a Treasury Department watchdog.

This is an increase of 3,230% from the end of 2019, when the IRS had around 239,000 paper returns waiting to be processed, according to the report released by the Financial Inspector for Tax Administration.

The delays were largely due to “unprecedented and drastic measures” taken by the IRS to protect employees and taxpayers during the Covid-19 pandemic, the report said.

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These measures included closing tax centers and other offices across the country in early April and extending the deadline for federal income tax filings to July 15.

The arrears mainly related to income tax returns, of which, according to the Watchdog report, almost 5.5 million were waiting to be processed at the end of 2020. Delays also affected, for example, trade tax returns for partnerships, corporations, estates and gifts, trustees and tax-exempt organizations.

According to a letter from Kenneth Corbin, commissioner for the IRS’s Payroll and Investment Department, in response to the report, the backlog on business tax returns has dropped significantly to 291,000 as of July 2021.

The IRS expanded its teleworking, hiring around 3,500 new employees at processing plants, and moving more than 2.3 million returns, forms and documents between processing centers to help balance inventory and avoid bottlenecks, he said.

“We have and will continue to take innovative measures to combat inventory build-up while protecting the health and safety of our employees and the taxpayer public,” wrote Corbin on Aug. 11.

According to the report, the agency also offered performance bonuses and overtime for employees.

However, the IRS continues to struggle to recruit enough staff to continue processing tax returns for 2020, the report shows. The agency had achieved 63% of its hiring target for the processing plant by July, Corbin said.

“The IRS’s inability to recruit enough staff will affect taxpayers waiting for refunds or who have taken out loans on pandemic deals,” the report said.

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