The ‘Crazy’ Reason for the IRS’s Huge Tax Return Backlog

The Internal Revenue Service has a backlog of nearly 15 million paper returns as of March 18, National Taxpayer Advocate Erin Collins reported in a blog post this week, noting that since the start of the Covid pandemic the agency has fallen almost a year behind in processing those paper returns.

“The reason paper returns are so challenging is that the IRS still has not implemented technology to machine read them, so each digit on every paper return must be manually keystroked into IRS systems by an employee,” Collins explained. That could mean several hundred digits for a “moderately complex” return, or more than a thousand entries for a longer return. “In the year 2022, this doesn’t just seem crazy. It is crazy,” Collins says.

She recommends that the IRS implement scanning technology to reduce the need for manual data entry. Over the past two decades, she says, “the IRS has considered, rejected, proposed, reconsidered, partially implemented, and deferred the question of whether to implement scanning technology.” Meaning it’s well past time for the agency to deal with its paper problem.

“If necessity can be the mother of invention,” Collins writes, “the unprecedented paper returns backlog resulting from the COVID-19 pandemic should spur the IRS to take immediate steps to automate the processing of paper tax returns – not in two years or three years but beginning with the upcoming filing season. The timely payment of tax refunds for millions of taxpayers is depending on it.”

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