IRS Makes Huge Strides in Paper Processing

By: Jonathan Curry



All the IRS’s efforts this year to make it a top priority to dig out of its mountain of unprocessed paper might be paying off.

The pace of tax return processing has surged in recent weeks and could make good on IRS Commissioner Charles Rettig’s promise to restore the agency’s inventories to a manageable level by the end of the year.

An August 29 IRS update on the status of the backlog suggests that its paper processing pace has nearly tripled from earlier this spring. As of August 19, the agency said it still had 8.7 million unprocessed individual tax returns that were received this year, comprising tax year 2021 returns and late-filed returns for prior years. About 1.7 million of those are returns with errors or that require special handling, while 7 million are paper returns awaiting review and processing.

Although still a substantial backlog, it’s a marked improvement from the previous week when the IRS reported its backlog stood at 9.3 million unprocessed returns, 7.6 million of which were paper. The number of returns requiring special attention remained the same.

The new data suggest the IRS is processing roughly 600,000 paper Forms 1040 per week, which would be more than enough to clear the backlog, although the agency may still be flooded with additional tax returns ahead of the October 15 extended filing deadline. Rettig has urged taxpayers to file electronically and as soon as possible.

According to a source familiar with internal IRS data on return processing efforts, the new numbers aren’t an anomaly, but the continuation of a steady increase in the processing pace throughout this summer. The source spoke with Tax Notes on condition of anonymity.

National Taxpayer Advocate Erin Collins in June offered a bleak assessment of the IRS’s ambitions to clear the backlog and “get healthy” on its inventories by year-end. In her midyear report, Collins noted that as late as the end of May, the IRS was processing only about 200,000 paper individual tax returns per week. To manage its inventory, the IRS would need to be processing about 500,000 returns per week, she said.

“The math is daunting,” Collins warned at the time.

Nearly 100 lawmakers from both parties echoed Collins’s concerns just two weeks ago, demanding that Rettig provide an update on the backlog.

All the attention on eliminating the backlog has come with trade-offs. The “surge team” composed of reassigned IRS employees likely exacerbated the agency’s already appallingly low level of phone service this year. 

In the meantime, the IRS has embarked on a hiring spree in which it seeks thousands of new employees for positions in its accounts management (taxpayer-service-oriented roles) and submissions processing (taxpayer returns and correspondence) functions. The IRS received direct-hire authority earlier this year.

The IRS didn’t respond to Tax Notes’ request for comment.