The IRS, which spent the pandemic years mired in backlogs of mail, said this week that it has processed all paper and electronic individual returns received before January of this year.
This means all returns received for tax year 2021 or earlier have been processed if the returns had no errors or did not require further review, the agency said in an update posted Monday.
As of April 29, 2023, the IRS said it had 3.8 million unprocessed individual returns. These include tax year 2022 returns, 2021 returns that need review or correction, and late filed prior-year returns.
Of these, 2.4 million returns require special handling such as correcting errors. The agency has another 1.4 million paper returns to review and process. It takes the IRS over 21 days to issue a refund in these cases because they require special handling although an employee typically does not have to contact the taxpayer, the agency said.
The General Accounting Office said in a report issued in December 2022 that the IRS had a backlog of about 10.5 million paper returns and returns stopped for errors. While the IRS addressed the backlog of 2021 paper returns, the GAO said that as of late September 2022, the agency "had about 12.4 million returns to process, resulting in refund delays for millions of taxpayers."
IRS Commissioner Danny Werfel said during his ceremonial swearing-in in April that the IRS staff was "already delivering on the promise of the Inflation Reduction Act. During the 2023 tax filing season, the IRS has provided taxpayers with a dramatically better experience than they have seen for several years. We have answered more calls from taxpayers, helped more people at our Taxpayer Assistance Centers and provided new online services for taxpayers who want to interact with us in this way."
The Inflation Reduction Act, P.L. 117-169, appropriated about $80 billion for the IRS to spend over the next decade.
IRS return processing
The IRS provided details on how it decides which tax returns to process first. For returns received in the current year, it first processes individual tax returns from people with refunds due to them. Returns from those who owe money are processed last. If a payment is mailed with the return, then the payment is deposited so the taxpayer gets credit for the payment.
Tax returns that need manual review because of errors are processed in the order received. A return could be delayed during processing because a mistake is found, information is missing, or identity theft or fraud is suspected, the IRS said. Getting these issues resolved could take over 120 days depending on the response time from the taxpayer — and the accuracy of that response — if the IRS must contact the filer. This applies to returns filed electronically or on paper.
In most cases, the taxpayer will not need to do anything else other than reply to requests from the IRS. However, taxpayers who are due a refund and filed a tax return on paper more than six months ago, and the site Where's My Refund? does not indicate the IRS has the return, should resubmit the return, electronically if possible. The resubmitted return should include an original signature and all documents submitted with the original return.
In all other cases, the IRS advises taxpayers to not file a tax return again and to check Where's My Refund? or the IRS's Your Online Account site for possible updates.
As of April 29, the IRS had 919,000 unprocessed amended individual tax returns. The processing of these Forms 1040-X — which the agency handles in the order received — could take over 20 weeks. Taxpayers should not file these returns more than once. Once again, taxpayers can check Where's My Refund? to stay up to date on the status of returns.
In a signal that IRS believes operations are returning to normal, its deputy commissioner for collection and operations support, Darren Guillot, said Friday that some collection notices will resume after being paused last year.
Guillot said at an American Bar Association tax conference panel in Washington, D.C., that no start date has been set for the resumption of these notices, Reuters reported.
Accounts with outstanding balances were frozen during this time, affecting "several million balance due accounts from the 2022 filing season, as well as other balances," the IRS said.
National Taxpayer Advocate Erin Collins also advised in her April 14 blog post that CP14 balance due notices would return in May. These notices inform taxpayers of how much they owe after filing their taxes and include a scannable QR code that directs to an IRS landing page for payments.
Guillot estimated that from the end of May to early June, about 5 million to 8 million CP14 notices will be sent to taxpayers.
In a letter sent to Treasury and IRS leaders on March 28 and signed by Jan Lewis, CPA, chair of the AICPA Tax Executive Committee, the AICPA made several recommendations to reduce the processing backlog to healthy levels. Those recommendations included "the suspension of certain automated collection notices until the IRS is better prepared to devote the necessary resources for a proper and timely resolution of the matters."
It is not clear that the IRS has met that goal, said Ed Karl, CPA, CGMA, vice president–Tax Policy & Advocacy for the AICPA.
"The IRS has made significant progress in drawing down the backlog, but it is not clear to us that all inventories are at pre-pandemic levels," he said. "The AICPA has previously stated that the IRS should continue the collection notice suspension until it is able to respond to correspondence in a timely manner. In addition, the suspension should be phased in with the use of 'soft' notices and public education. If the suspension is lifted while there is still a significant amount of correspondence not processed, the resumption will only complicate the existing backlog issue, resulting in even more mailings that will need to be processed from taxpayer responses to collection notices, and more volume for telephone assistors as anxious taxpayers and practitioners call to get assistance or to request holds on collection activity for issues about which they have already responded."
— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.