May 12, 22

NEWS / IRS intentionally destroys 30 million informational forms

The IRS has intentionally destroyed an estimated 30 million paper-filed informational forms due to its inability to catch up on its backlog of paper-filed returns, an audit by the Treasury Inspector General for Tax Administration (TIGTA) has reveled. Such forms include W-2s and 1099s, filed by payers to report payments of taxable income to taxpayers. The audit does not say whether actual 1040 tax returns had been destroyed, only mentioning informational forms used to conduct “post-processing compliance matches to identify taxpayers who do not accurately report their income.” The decision to destroy the documents was made in March 2021. Now that these documents have been destroyed, the IRS may be missing the documents it requires to verify that returns were filled out accurately and to properly conduct audits. In certain cases, the IRS may ask taxpayers to provide copies of those informational forms themselves. The TIGTA audit also referenced recommendations it made to the IRS to increase the number of electronic filings both for individuals and businesses. It noted in particular that businesses face obstacles in filing electronically and the IRS should identify and eliminate these. Electronic filings significantly reduce processing time and costs for the IRS, which has been suffering from understaffing and underfunding, with months-long delays processing paper returns. It should be noted that delays in processing paper returns have resulted in the need for the IRS to pay interest to taxpayers. A Government Accountability Office report found that the IRS paid almost $14 billion in interest to taxpayers in the last 7 years, with almost 25% of that sum paid in 2021 alone, largely due to the disruptive effects that the COVID-19 pandemic had on staffing at the agency.