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Individual Tax

IRS Indicates Steady Progress Towards Clearing Processing Backlog

Joseph Boris  

Joseph Boris  

The IRS as of August 19 had 8.7 million unprocessed individual tax returns it has received in 2022, a mix of returns for 2021 and late-filed returns for previous tax years, the agency said in an update on its backlog of returns and taxpayer correspondence.

Among the returns are 1.7 million that contain errors or require special handling, while 7 million are paper returns that still must be reviewed and processed, according to an August 29 update posted on the IRS.gov webpage “COVID-19: Mission-critical functions continue.”

A spokesperson for the IRS told Checkpoint that the agency had nothing to provide beyond its online update.

The IRS has struggled to clear an inventory clogged as a result of the pandemic, which required the agency to shoulder the task of administering various forms of congressionally approved tax relief, including distribution of economic impact payments under the Coronavirus Aid, Relief and Economic Security (CARES) Act even as it tackled internal closures and staffing shortages. As of late May, the backlog had grown to unprecedented size, the National Taxpayer Advocate said in her midyear report to Congress, released in June.

The relief for taxpayers who filed their returns will be issued automatically, in the form of tax refunds for those who already paid the penalties or abatements for those who haven’t, the agency said in Notice 2022-36. It’s intended to help those struggling because of the pandemic, while also freeing up agency resources to reduce its pandemic-induced backlog of returns and correspondence from taxpayers, according to the IRS.

“The IRS is opening mail within normal timeframes and all paper and electronic individual returns received prior to January 2022 have been processed if the return had no errors or did not require further review,” the update said.

Issuing a tax refund for a return in need of special handling can take more than 21 days and in some cases up to 120 days, the IRS added, noting that this work doesn’t typically require the agency to correspond with taxpayers.

If a correction is made to any of several tax credits claimed on a return being processed—Recovery Rebate and the child tax, earned income tax, and additional-child tax credits—the IRS will send taxpayers an explanation, the update said. It encouraged taxpayers to check the Tax Season Refund Frequently Asked Questions on IRS.gov.

Two months ago, the IRS said it had 11 million unprocessed returns filed for 2022 by June 10. By that date, 143 million returns had been processed, representing the bulk of returns in the agency’s inventory. In the same statement June 21, the IRS also said it would soon complete processing of all original, error-free individual returns filed on Form 1040 in 2021, clearing a backlog of 8 million returns.

Of the 11 million unprocessed individual returns remaining in June, 1.9 million required error correction or other special handling, and 9.1 million were unprocessed paper returns. By that date, the IRS had processed over 4.5 million of the more than 4.7 million individual paper returns filed in 2021, according to the news release and a Treasury Department official.

On August 24, the IRS announced in Notice 2022-36 that it was granting pandemic penalty relief for late-filed returns for 2019, and 2020, adding about $1.2 billion in penalties already paid would be refunded as part of CARES relief.

The relief for taxpayers who have filed their returns will be issued automatically, as refunds for those who already paid the penalties or abatements for those who haven’t, according to the notice. Individual filers have until September 30 to qualify for the relief, while deadlines have already passed for other information returns for employers and businesses—August 2020 for 2019 returns and August 2021 for 2020—to qualify for the relief.

The IRS update also addressed the processing of tax returns on various forms:

  • Form 1040-X, Amended Individual Tax Return: 1.9 million unprocessed as of August 20. The current timeframe can be more than 20 weeks instead of the pre-pandemic wait of up to 16 weeks, the IRS said.
  • Form 941, Employer’s Quarterly Federal Tax Return: 4.6 million unprocessed as of August 24. The number of unprocessed amended payroll tax returns on Form 941-X was about 136,000, including some that can’t be processed until the underlying Form 941 is processed.

As reported by Thomson Reuters Tax & Accounting on August 25, the IRS backlog for unprocessed Forms 941 (Employer’s Quarterly Federal Tax Return) was increasing, based on the agency’s stated inventory of 4.8 million as of August 17—one week before the latest update. The earlier data was posted on the “mission-critical functions” page on IRS.gov.

 

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