The IRS shredded tax data for millions of filers, leaving Tax Pros horrified. A professional tax preparer says the move will worsen an already nightmarish process.
The Internal Revenue Service decided to destroy an estimated 30 million paper-filed information return documents in March 2021 because of its inability to process its backlog of paper tax returns.
On Monday, the Treasury Inspector General for Tax Administration reported that the IRS typically uses information return documents for post-processing compliance matches to identify taxpayers who don’t accurately report their income.
The report focuses on how the IRS should be doing more to encourage the electronic filing of business tax returns and reduce paper filing. TIGTA reported that, while the e-filing of business tax returns has continued to increase, the e-filing rate still lags behind that of individual tax returns.
Following the report, a key Democrat lawmaker called for the firing of the agency’s chief for the destruction of 30 million paper tax returns.
The revelation that the IRS quietly disposed of around 30 million unprocessed tax documents is the latest blow to the reputation of an agency that has long struggled with its public perception. https://t.co/45e1I3fsg3
— Bloomberg Tax (@tax) May 13, 2022
House Ways and Means Committee member Rep. Bill Pascrell is calling on President Joe Biden to replace the head of the Internal Revenue Service Charles Rettig after an audit showed the agency destroyed data relating to some 30 million paper tax returns. https://t.co/14cMSi3J83
— Newsmax (@newsmax) May 14, 2022
The report stated that, “The continued inability to process backlogs of paper-filed tax returns contributed to management’s decision to destroy an estimated 30 million paper-filed information return documents in March 2021.”
The #IRS decided to destroy an estimated 30 million paper-filed information return documents in March 2021 because of its inability to process its backlog of paper #tax returns, according to a new report. https://t.co/8o5EhZrmy2
— Accounting Today (@AccountingToday) May 9, 2022
Here’s what Daily Mail reported:
The documents, described as paper-filed information returns, are filed annually by employers and financial institutions, and include copies of the W-2 forms sent to taxpayers. The paperwork is used to verify the details on individual taxpayers’ returns, and without it, the IRS could see more delays and mixups, they predicted.
IRS Commissioner Charles Rettig blamed the backlog on budget cuts and the COVID pandemic, which resulted in offices being closed for long stretches.
“There were no negative taxpayer consequences as a result of this action,” the IRS said in a statement. “Taxpayers or payers have not been and will not be subject to penalties resulting from this action.”
Rep. Bill Pascrell, (D-NJ), called on the Biden administration to fire Rettig over the scandal.
“The IRS is vital to public confidence in our nation and its Trump-appointed leader has failed,” said Pascrell, chair of the House Ways and Means Committee’s oversight subcommittee.
Phyllis Jo Kubey, president of the New York State Society of Enrolled Agents was shocked that the agency dumped the massive trove of documents via CNBC:
Missing information returns can cause a “mismatch” at the IRS, delaying refunds because the agency can’t verify details on a taxpayer’s returns, she explained.
While the eventual consequences of the decision are unknown, tax professionals have long complained about the stream of automated IRS notices, with limited options to reach the agency.
“If they’re not putting those into the system, there’s going to be discrepancies, which means potential notices that are sent out,” said Dan Herron, a San Luis Obispo, California-based certified financial planner and CPA with Elemental Wealth Advisors.
Although the IRS halted more than a dozen types of automated notices in February, Herron says the constant correspondence is still creating headaches for taxpayers and advisors.