Tax Refunds: 35 Million Unprocessed Tax Returns Due To IRS Delays

(CBS Philadelphia) — The Internal Revenue Service (IRS) has been engaged lately. Besides processing 136 cardinal taxation returns, according to a study from National Taxpayer Advocate Erin Collins, the bureau sent retired much stimulus checks, updated rules for unemployment insurance, and prepared to motorboat beforehand payments for the Child Tax Credit. And the IRS, which has endured staffing and backing cuts implicit the erstwhile decade, did each of this during the process extremity of a pandemic. But their efforts to upwind what Collins described arsenic a “perfect storm” came up a small short. The bureau inactive has astir 35 cardinal unprocessed taxation returns.

“The IRS and its employees merit tremendous recognition for what they person accomplished nether precise hard circumstances, but determination is ever country for improvement.” Collins wrote successful her report.

READ MORE: Child Tax Credit: IRS Could Face Implementation Problems For Monthly Check

“This year, the IRS is dealing with an unprecedented fig of returns requiring manual review, slowing
the issuance of refunds,” Collins continued. “These processing backlogs substance greatly due to the fact that astir taxpayers overpay their taxation during the twelvemonth by mode of wage withholding oregon estimated taxation payments and are entitled to person refunds erstwhile they record their returns. Moreover, the authorities uses the taxation strategy to administer different fiscal benefits.”

The 35 cardinal pending returns relationship for 20 percent of the full returns submitted. And with the May 17 national taxation deadline astir 2 months successful the past, the IRS is good beyond the 21-day processing clip it typically strives for. Myriad reasons relationship for the delay.

Starting From Behind

Many of the factors that lend to the backlog are mostly beyond the IRS’s control. The bureau came into the astir caller taxation play with millions of pending taxation returns from 2019 and before. As with astir bureau workers, galore IRS employees had to bash their jobs from location for overmuch of the pandemic. Paper returns, which sat successful trailers awaiting processing, were inaccessible. Only erstwhile workers returned to the bureau could they tackle these outstanding insubstantial returns.

Pandemic-related changes to the taxation codification were besides passed conscionable weeks earlier taxation season. The Consolidated Appropriations Act, 2021, which included the $900 cardinal 2nd stimulus package, contains a “lookback rule.” That lets filers who suffice for the Earned Income Tax Credit (EITC) oregon the Additional Child Tax Credit (ACTC) usage their 2019 income to fig retired the close magnitude connected their 2020 return. The IRS didn’t person capable clip to alteration forms and set machine systems. As a result, millions of forms person to beryllium processed manually done their Error Resolution System.

Discrepancies with the Rebate Recovery Credit were besides acceptable speech for manual processing. This is the recognition radical tin assertion if they received little than they were eligible for successful their archetypal oregon 2nd stimulus check. At 1 point, the Treasury Inspector General for Tax Administration reported that astir one-third of those who had claimed the Rebate Recovery Credit had their forms flagged for review.

More Reasons For The Backlog

Since the commencement of 2021, the IRS has issued the 2nd and 3rd economical interaction payments, amended known arsenic stimulus checks. The second, for up to $600, started going retired astatine the extremity of December 2020, arsenic portion of the Coronavirus Response and Relief Supplemental Appropriations Act. The third, for up to $1,400, started going retired successful the mediate of March, arsenic portion of the American Rescue Plan Act. The IRS began accepting taxation returns connected February 12. So the latest cheque was processed during taxation season, its busiest clip of the year.

Another cardinal constituent of the American Rescue Plan is the updated Child Tax Credit. Starting July 15, the IRS volition wage $3,600 per kid to parents of children up to property five. Half volition travel arsenic six monthly payments, and fractional arsenic a 2021 taxation credit. That comes retired to $300 per period and different $1,800 astatine taxation time. The full magnitude changes to $3,000 per kid for parents of six to 17 twelvemonth olds, oregon $250 per period and $1,500 astatine taxation time. The IRS has besides been lasting up this caller programme of monthly Child Tax Credit payments during taxation season. While the bureau has present sent retired 3 stimulus checks, it has nary acquisition sending retired millions of periodic payments. Resources dedicated to mounting up this programme are resources not dedicated to its core mission, which is to “provide America’s taxpayers apical prime work by helping them recognize and conscionable their taxation responsibilities and enforce the instrumentality with integrity and fairness to all.”

READ MORE: Fourth Stimulus Check: Is Another Relief Payment Coming?

Poor Service

Americans person not received that apical prime work this year. That lesser work started online and extended to in-person interactions implicit the telephone.

With delays crossed the country, radical looked to the IRS’s Where’s My Refund instrumentality to find accusation connected their pending refunds. (For the 2021 filing season, the IRS processed 96 cardinal refunds worthy a full of $270 billion.) The instrumentality tin archer a payer that their filing was received, approved, oregon sent. It does not supply immoderate specifics astir what’s holding up the refund, what further accusation mightiness beryllium needed for processing, oregon erstwhile it mightiness beryllium issued. That deficiency of transparency inevitably pushes radical to telephone connected the telephone.

Taxpayers seeking accusation and guidance turned to the agency’s toll-free telephone lines. And the fig of radical inquiring was staggering. The IRS received 167 cardinal calls during the 2021 taxation season, astir quadruple the fig it received during the 2018 taxation season. At highest times,1,500 calls came successful per second. Unsurprisingly, the level of work dropped dramatically. Only 9 percent of callers seeking taxation assistance reached idiosyncratic who could supply it. Calls to the 1040 enactment enactment specifically reached a unrecorded idiosyncratic lone three percent of the time

Overworked And Underfunded

Collins’s study besides cites constricted resources and exertion issues arsenic reasons for delays successful processing taxation returns. The bureau operated nether galore of the aforesaid limitations that person affected bureau workers the satellite implicit during the pandemic. That included remote work, which tin impact efficiency. The IRS is besides understaffed and underfunded. Congress has continually reduced the agency’s fund implicit the past decade. Funding and full employment are some down by astir 20 percent.

An IRS watchdog informed Congress that fund cuts bounds the agency’s quality to support up with exertion and cod taxes. The bureau has agelong relied connected an aged programming connection called COBOL. That isn’t needfully a problem, unless the codification isn’t kept up to date. And the IRS hasn’t kept it up to date. So erstwhile stimulus checks oregon changes to the taxation codification travel along, the bureau has to find and wage programmers to hole things. The IRS initiated a modernization effort successful 2019, but it relied connected aboriginal funding. President Biden is besides looking to summation the agency’s funding by $80 cardinal implicit the adjacent decade. The fund would turn astatine a complaint of 10 percent per year, and the workforce astatine a complaint of 15 percent per year.

Beginning the taxation play astatine a disadvantage contributed to the 35 million-return backlog. Tasking the IRS with stimulus checks and the updated Child Tax Credit astatine the aforesaid clip drew resources distant from processing taxation returns. And a past of understaffing and underfunding acceptable them up for failure. All of this enactment a strain connected Americans who were counting connected timely refunds.

“The IRS’s historically precocious fig of returns requiring manual reappraisal means that astir idiosyncratic taxpayers successful this radical and galore concern taxpayers volition not person timely refunds and volition person to hold until the IRS yet processes their returns,” wrote Collins. “For taxpayers who tin spend to wait, the champion proposal is to beryllium diligent and springiness the IRS clip to enactment done its processing backlog. But peculiarly for low-income taxpayers and tiny businesses operating connected the margin, refund delays tin enforce important fiscal hardships.”

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First published Friday, July 2, 2021 astatine 3:39 p.m. ET.