If you think the COVID-19 pandemic disrupted your life, just be thankful you are not the Internal Revenue Service. The IRS can’t catch a break.
Trying to give taxpayers some relief during the pandemic, Congress directed the IRS to delay last year’s tax filing deadline from the traditional April 15 date until mid-July. The result was a logjam of returns and a compressed time period in which to process them. Electronic returns (which represent an increasing percentage of all returns) presented few problems. But paper returns piled up. According to an interim report from the Treasury Inspector General for Tax Administration, an estimated 8.3 million returns from last year still have not been processed.
That was before the 2021 filing season even opened, with millions more returns pouring in by the extended May 17 deadline.
Part of the problem is that Federal Records Centers were closed because of COVID-19, and only gradually began reopening in May. Millions of returns are still being stored in trailers as they await processing.
Another challenge is staffing. At the beginning of tax season this year, more than 4,400 IRS tax processing positions remained unfilled. One result of this staff shortage is a 173% increase in the backlog of IRS correspondence, with over 5 million taxpayer inquiries and more than 34 million phone calls going unanswered. Plus, replacements for broken copiers have been slow to arrive, so document requests are going unfulfilled.
What does this mean for taxpayers? The most worrisome aspect is a delay in tax refunds that may be due. The IRS will pay you interest (3% annual rate) on delayed returns - last year the agency paid out $3 billion in interest for delayed returns, up 50% over the prior year. But that is scant comfort for anyone who was counting on the timely receipt of a refund check. Plus, you will owe taxes on any interest you earn. Look for a Form 1099-INT in January detailing the interest payment info to anyone who receives interest totaling at least $10.
The IRS is working hard to catch up on last year’s work while processing this year’s tax returns. If anything, the delays and problems are an incentive for people to file their tax returns electronically.
Gray, Gray & Gray’s Tax Department is here to assist with your tax needs. Please contact us at (781) 407-0300 or visit our website at www.gggllp.com.