IRS Virus Woes to Drag on With Delayed Notices, Mail Backlog

The IRS continues to deal with new and existing challenges stemming from the coronavirus pandemic, even as it begins to reopen some of its facilities, according to the head of the Taxpayer Advocate Service.

Throughout June, the IRS brought thousands of employees back to their offices across the country with more recalls coming in July. The reopenings will help the agency begin to sift through a backlog of millions of pieces of unprocessed mail and paper returns.

But the headaches for the IRS and taxpayers won’t end just because the agency has resumed some operations it shut down because of Covid-19, National Taxpayer Advocate Erin M. Collins said in her first report to Congress. Collins took over the position leading the Taxpayer Advocate Service—an independent arm of the IRS designed to help taxpayers resolve problems with the agency—earlier this year.

“Although the IRS is reopening some of its core operations, it is not clear when it can open and log all the returns sitting in mail facilities,” Collins said, noting the agency was sitting on a backlog of 4.7 million unprocessed paper tax returns as of May 16.

An IRS official earlier this month noted the agency has a backlog of about 11 million pieces of unopened mail. That includes taxpayer correspondence, information returns, and payment vouchers, in addition to paper returns.

Individuals who filed by paper are facing “extreme delays” in getting their returns processed, holding up needed refunds for many, Collins said. The IRS, as of May 22, had processed 75% fewer paper-filed individual income tax returns than it did by the same time last year, according to the report.

“Many taxpayers are facing financial hardship associated with the COVID-19 crisis and need the IRS to process their paper-filed returns as soon as possible and release their refunds,” Collins said.

Delayed Notices, Mail Audits

The IRS has only now begun to send out more than 20 million notices that had been generated but not mailed before facility closures began. Some are collection notices bearing old dates and response deadlines that have already passed. It’s a problem the IRS has tried to rectify by including inserts with the notices that contain updated due date information, as opposed to modifying the notices themselves.

Some people might not know to read through the entire mailing or understand the significance of the insert, Collins said.

“Taxpayers who receive these notices may be confused and distressed believing they missed response deadlines.”

She said the Taxpayer Advocate Service is working with the IRS to develop and implement a communications strategy to alleviate some of that confusion.

The agency will also be challenged to catch up with audits that were occurring by mail before the pandemic hit.

The IRS at the end of March announced it was suspending most new examinations. The agency in total started 65% fewer audits between April 1 and June 1 of this year compared to the same period last year.

But that didn’t help taxpayers in the middle of ongoing correspondence audits.

“Unfortunately, the taxpayers currently under examination may find that their examinations are taking longer to complete—not only because of the large amount of mail to work through but also because it will take the mail processing functions time to sort the examination mail from the other types of mail accumulated,” Collins said.

The Taxpayer Advocate Service estimated that nearly 100,000 taxpayers undergoing a correspondence audit could have unprocessed mail, in addition to the existing 63,000 pieces of mail logged prior to the IRS closures and awaiting consideration.

Collins urged the agency to evaluate these and other challenges it has faced as a result of the pandemic in order to prepare for the next national emergency.

“While the circumstances of the next incident will differ, the IRS can take actions now to ensure that the agency’s core operations will continue in the face of similar challenges,” she said.