IRS Destroyed 30 million paper tax documents

A recent audit by the Treasury Inspector General of Tax Administration (TIGTA) discovered that the IRS intentionally decided to destroy taxpayers’ documents. An estimated 30 million paper-filed information return documents were destroyed in March 2021.

TIGTA said the IRS destroyed the documents due to its inability to catch up on its backlog of paper-filed returns.

The audit was conducted to determine the reason for the IRS’s continued inability to process the backlog of paper-filed tax returns.

The audit does not claim that 1040 income tax forms from taxpayers were destroyed. However, it reported that informational forms that support the tax filing were destroyed. 

Some of the common information forms include W-2, 1099, and 1098, among others. These documents are used by the IRS to conduct post-processing compliance matches to identify taxpayers who do not accurately report their income.

The documents provide information that helps the IRS’s Automated Underreporter Program identify people who are not accurately reporting their income. The IRS told TIGTA that when the tax year ends, the information returns such as the various types of Form 1099 can no longer be processed due to system limitations. The system used to process the information returns is taken offline in order to program updates for the following tax season.

As a result of the supporting information being destroyed, the IRS will likely be missing many of the documents required to accurately screen for the accuracy of returns. Additionally, the IRS may be lacking the material it needs for tax audits. However, the IRS can request taxpayers provide copies of documents used to support their income tax returns. Consequently, you could be required to send documents to the IRS that you have already provided. The IRS request for these documents can cause huge delays in processing tax returns.

Many tax professionals are extremely upset about the IRS destruction of information. “If they’re not putting those into the system, there’s going to be discrepancies, which means potential notices that are sent out,” said Dan Herron, a certified financial planner and CPA with Elemental Wealth Advisors.

The new TIGTA report stated that the IRS continues to receive large volumes of paper-filed tax and information returns, which require additional costs to process each year. The IRS spent more than $226 million processing paper-filed tax returns.

Erin Collins of the National Taxpayer Advocate formally directed the IRS to take immediate steps toward implementing existing scanning technology to process paper returns. “Over the past year, the IRS has not made progress in reducing its backlog,” Collins said in the directive.

The National Taxpayer Advocate is required by statute to submit a year-end report to Congress that makes administrative recommendations to resolve taxpayer problems. The IRS has taken the position that it is not required to respond directly to them. The National Taxpayer Advocate believes the IRS is required by law to provide direct responses.

David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. He is the author of five tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, YourTaxCare.com. David has appeared on national tv, and recordings of David’s daily tax tip radio program are also available. David can be reached at (865) 363-3019 or contacted by email at david@yourtaxcare.com