IRS Destroyed 30 Million Documents Due To Backlog

( Due to a delay in processing paper documents, the IRS destroyed an estimated 30 million paper-filed information returns in March 2021. This information was discovered in a recently released Treasury Inspector General for Tax Administration Report.

The audit was launched to look into difficulties that are limiting more extensive use of electronic filing for company returns, but it began by stating that the decision to delete these records prompted the investigation:

The IRS’s continuing failure to handle backlogs of paper-filed tax returns prompted management to throw in the towel.

Apart from identifying Forms 1099-MISC as an example of the sorts of destroyed forms, the report provides minimal detail regarding the information returns involved.

The report says that the IRS continues to have a considerable backlog of unprocessed paper-filed individual and company tax returns after restarting its Tax Processing Centers in June 2020. Management’s decision to trash an anticipated 30 million paper-filed information return documents in March 2021 was influenced by the difficulty of clearing backlogs of paper-filed tax returns.

The IRS uses these records for post-processing compliance checks, such as the Automated Underreporter Program, which identifies taxpayers who are not correctly reporting their income. Due to technology limits, IRS management informed us that information returns, such as Forms 1099-MISC and miscellaneous Information, will no longer be handled once the tax year ends. This is the case because the system that processes these information returns has been taken offline for programming modifications in preparation for the next filing season.

Joe Kristan of Eide Bailly LLP said that It’s stunning for the IRS to toss all that work away. He said it’s a slap in the face of taxpayers who correctly submitted their information returns online since their data can be scrutinized. Taxpayers who have failed to file paper information returns or have underreported income will not be detected.

A former National Taxpayer Advocate, Nina Olson, asked how the government could compel taxpayers to complete their filing duties for information returns when it cavalierly destroys lawfully submitted documents.

It seems to be unequal treatment.