IRS backlogged on millions of tax returns

For many Americans still waiting to receive their tax refund, it appears the wait could be far from over.

The National Taxpayer Advocate's federally authorized report to Congress found that the IRS held an unprecedented number of tax returns for manual processing this year, leading to major delays and millions of Americans waiting months for their refunds.

"The 2021 filing season was the quintessential definition of a perfect storm," the report says. "No one could have predicted a global pandemic or the lasting and lingering impact to taxpayers, IRS employees, and tax administration during the last 15 months. To state the obvious, this filing season has been challenging for tens of millions of taxpayers and anything but normal for the IRS and its employees."

At the end of the 2021 filing season, the IRS had 35.3 million unprocessed returns, four times more than just two years ago.

"Processing delays matter greatly because most taxpayers overpay their tax during the year via wage withholding or quarterly payments and are entitled to receive refunds (this filing season, 70 percent of individual income tax returns had associated refunds, with an average refund of $2,827)," the reports says. "Until the IRS can manually work through the over 35 million unprocessed tax returns, it will not be able to issue refunds to impacted taxpayers."

The IRS pointed to COVID delays as a key cause of the backlog.

"Although most taxpayers successfully filed their returns and received their refunds, a historically high number did not," the IRS said in a statement. "At the conclusion of the filing season, the IRS faced a backlog of over 35 million individual and business income tax returns that require manual processing — meaning that employee involvement is generally needed before a return can advance to the next stage in the processing pipeline. The backlog includes about 16.8 million paper tax returns waiting to be processed; about 15.8 million returns suspended during processing that require further review; and about 2.7 million amended returns awaiting processing. The backlog resulted largely from the pandemic-related evacuation order that restricted employee access to IRS facilities."

The report also says the IRS had a historically high number of unanswered phone calls and a "historically low level of service." The federal tax agency responded to less than 10% of its 167 million calls for assistance.

"Millions of 2019 and 2020 paper returns were delayed and awaited processing, and tens of millions of returns awaited the atypical necessity of manual reviews — most still waiting for processing," the report says.

The $1.9 trillion COVID relief bill has added to the IRS backlog as well. The new law added another stimulus check and also instituted the new fully refundable advanceable child tax credits.

Those are set to go out beginning July 15 of this year. This new program has tasked the IRS with sending out monthly checks to qualifying families, paying them per child.

"In particular, large numbers of returns were sent to ERS where (i) there was a discrepancy between the amount of the Recovery Rebate Credit (RRC) a taxpayer claimed and the amount for which IRS records indicated the taxpayer qualified and (ii) a taxpayer elected to use 2019 earnings (rather than 2020 earnings) for purposes of claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC)," the report says. "In these and other circumstances, employees needed to review the return and either manually release the refund or confirm the error. Reduced staffing combined with the high volume of returns sent to ERS has forced the IRS to "suspend" returns (essentially placing them into a work queue) until ERS is able to work them."

That means for many Americans, all they can do is wait.

"This past year and the 2021 filing season conjure up every possible cliche for taxpayers, tax professionals, the IRS, and its employees," said Erin Collins, who authored the report. "It was a perfect storm; it was the best of times and the worst of times; patience is a virtue; with experience comes wisdom and with wisdom comes experience; out of the ashes we rise; and we experienced historical highs and lows."