The IRS trashed data for millions of taxpayers, according to a Treasury Inspector General for Tax Administration investigation, causing outrage in the tax community.
Employers and financial institutions provide the material, known as paper-filed information returns in accounting terminology, once a year and include taxable activities, such as W-2 forms, with copies given to taxpayers and the IRS.
According to the study, “management’s decision to trash an anticipated 30 million paper-filed information return documents in March 2021 was influenced by the persistent inability to process backlogs of paper-filed tax returns.”
According to Commissioner Charles Rettig, the IRS backlog will be cleared by December due to years of budget cuts, understaffing, pandemic-related office closures, and increased responsibilities.
While the article does not indicate specific information forms were thrown out, the revelation has enraged tax professionals, especially following another tough filing season.
Phyllis Jo Kubey, a New York-based enrolled agent and president of the New York State Society of Enrolled Agents, said, “I was shocked when I read the article documenting the destruction of paper-filed information reports.”
Missing information returns can result in an IRS “mismatch,” delaying refunds since the IRS is unable to verify facts on a taxpayer’s return, she noted.
While the decision’s long-term ramifications are uncertain, tax professionals have long grumbled about the flood of automated IRS letters and the agency’s limited contact options.
“If they don’t enter things into the system, there will be disparities, which implies possible notifications,” said Dan Herron, a certified financial planner and CPA of Elemental Wealth Advisors in San Luis Obispo, California.
Despite the IRS’s February suspension of more than a dozen types of automated mailings, Herron claims that the continual contact is still causing problems for individuals and advisers.
“This action had no negative taxpayer repercussions,” the IRS stated in a statement released on Thursday. “As a result of this action, no fines have been or will be imposed on taxpayers or payers.”
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The announcement was a “break of our trust,” according to Brian Streig, a CPA with Calhoun, Thomson, and Matza LLP in Austin, Texas, who pointed to the weight on the business community.
“Every year in January, small companies are stressed with attempting to appropriately prepare these informative returns and have them submitted on time,” he added. “Watching the IRS burn these documents is almost like the IRS admitting they don’t care.”
Similar concerns were expressed by Larry Harris, a CFP and director of tax services at Parsec Financial in Asheville, North Carolina, who questioned the agency’s capacity to remain compliant.
“It just hurts the IRS’s credibility in the business world and in the general public,” he continued.