The IRS’ decision to destroy data for millions of taxpayers will not harm filers, the agency said in a statement on Thursday.
According to a Treasury Inspector General for Tax Administration audit, the IRS trashed an estimated 30 million so-called paper-filed information returns in March 2021.
The announcement has infuriated the tax community, with many fearing that the IRS would be unable to validate returns, resulting in more erroneous warnings, especially with restricted options to contact the IRS.
“In 2020, we processed 3.2 billion information returns.” Information returns are not tax returns, and they are records filed to the IRS by third-party payors rather than taxpayers, according to the IRS.
The remaining 1% of the information returns were destroyed owing to a “technical constraint,” according to the government, in order to make place for the 2021 reporting season.
“This action had no negative financial effects for taxpayers.” The agency stated that “no sanctions have been imposed or will be imposed as a result of this action.”
The scenario highlights “major challenges faced by obsolete IRS technology,” according to the agency. In 2020, the IRS prioritized processing backlogged returns to offer refunds and other Covid-19 relief over processing fewer than 1% of paper information returns — largely Form 1099s — which accounted for less than 1% of all returns.
The IRS noted that due to system limits, it must complete paper forms by the end of the calendar year in which they were received.
“Not processing these information returns had no influence on taxpayers’ original return filing in any way,” the IRS stated. “Taxpayers received their own copy to use in filing an appropriate return.”
“All paper information returns received in 2021 and 2022 will be processed by the IRS,” the agency noted.