National Taxpayer Advocate Erin M. Collins today released her statutorily mandated mid-year report to Congress. The report presents an assessment of the 2021 filing season, identifies key objectives the Taxpayer Advocate Service (TAS) will pursue during the upcoming fiscal year, and contains the IRS’s responses to each of the 73 administrative recommendations the Advocate made in her 2020 Annual Report to Congress.
Although most taxpayers successfully filed their returns and received their refunds, a historically high number did not. 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.
Processing backlogs matter greatly, the report says, because most taxpayers overpay their tax through wage withholding or estimated tax payments and are entitled to receive refunds when they file their returns. The government also uses the tax system to distribute financial benefits. So far for tax year 2020, in addition to refunding overpayments of tax, the IRS has issued about 20 million refunds that include Earned Income Tax Credits worth up to $6,660 and about 15 million refunds that include Additional Child Tax Credits worth up to $1,400 per qualifying child. This year, over eight million taxpayers also may be eligible to receive Recovery Rebate Credits.
“For taxpayers who can afford to wait, the best advice is to be patient and give the IRS time to work through its processing backlog,” Collins wrote. “But particularly for low-income taxpayers and small businesses operating on the margin, refund delays can impose significant financial hardships.”