The Internal Revenue Service audit found that staff destroyed 30 million tax documents due to a huge backlog. The tax collection agency claims that no taxpayers were affected by the destruction.
Three recommendations were made by the Treasury Inspector General for Tax Administration to the IRS for improving its paper tax forms processing and encouraging more e-filing. Two of these recommendations were rejected by the IRS.
According to the TIGTA report signed Michael E. McKenney (deputy inspector general for audit), “This audit was initiated due to the IRS’s inability to process paper-filed tax return backlogs contributed to management’s decision of destroying an estimated 30,000,000 paper-filed information returns documents in March 2021.” These documents are used by the IRS to perform post-processing compliance matches to find taxpayers who have not reported their income accurately.
Last week, the IRS released a public statement regarding the first inspector general report published on May 4.
According to the IRS statement, there were no adverse consequences for taxpayers as a consequence of this action. This action has not resulted in penalties for taxpayers or taxpayers and they will not.
According to the inspector general, the destroyed tax documents comprised W-2 forms as well as 1099 forms. According to the report, the IRS provided inaccurate responses to the inspector general.
The report states that “Although the IRS doesn’t have an exhaustive and accurate list of individual and corporate tax forms that cannot be e-filed,” is of particular concern. “For example, we were provided a list by the IRS on September 16, 2020 that identified 365 tax forms that cannot be e-filed. This list contained inaccuracies that were discovered during our review. The list contained tax forms that could be electronically filed and forms that were not available to be e-filed. We discussed the inaccuracies with IRS management. They stated that the list has not been updated since the calendar year 2018. This was due to agency priorities and limited funds.
According to the inspector general’s report, the IRS was asked to develop a Service-wide strategy that prioritizes and integrates all forms for electronic filing. This recommendation was accepted by the IRS.
The IRS was also recommended by the inspector general to “develop processes, procedures to identify and deal with potentially noncompliant corporate filers.”
The IRS however, objected. According to the report, “The IRS disagreed with that recommendation.” The IRS management stated that corporate filers would be subject to penalties if they fail to electronically file returns as required. They must have filed 250 returns or more and have assets of at least $10 million. These criteria may not all be available or known at the time of filing.
TIGTA suggested that the IRS “develop processes to ensure that penalties against business filers who are not compliant with efiling requirements are consistently assessed.”
The IRS disagreed and stated that the “IRS management stated that it had systemic processes in place to e-file partnership returns and they were working as intended.”
According to the TIGTA report, e-filing has increased in business since 2014 from 41% up to 63%.
