IRS destroys tax data for 30 million filers

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A professional tax preparer says the move will worsen an already nightmarish process

If you need a copy of a previous tax return from the IRS, you may be out of luck. According to a recently released report from the Treasury Inspector General for Tax Administration (IG), the U.S. income tax agency laid waste to data belonging to an estimated 30 million filers in March 2021.

The IG called it a “management decision” stemming from the IRS’ “continued inability to process backlogs of paper-filed tax returns.” The IRS made another decision to cut back on its handling of paper earlier this year when it decided to suspend the mailing of additional letters, such as balance due notices and unfiled tax return notices, to taxpayers.

The push to e-file

While the agency didn’t come right out and say it would rather have taxpayers file electronically, the report spent considerable ink promoting e-filed tax returns as the preference. 

“[E-filings] are sent through a number of upfront validations that check for more than 1,000 possible errors before the IRS accepts an e-filed tax return for processing,” the report said.

The agency says filing electronically comes with other benefits, including: 

  • No need to mail paper tax returns

  • Greater tax return accuracy

  • Confirmation that the IRS received the tax return

  • Secure and confidential submission of highly personal tax return information, and

  • E-filing substantially reduces IRS processing costs.

The IG stated that the error rates are a lot lower for e-filed returns when compared to paper-filed tax returns. For example, the paper-filed tax return error rate was almost 10 times greater than the e-filed tax return error rate during the 2020 tax year.

Despite what might be a push towards e-filing, the public may have a different preference when it comes to filing taxes. Earlier this year, a separate study by tax preparation company Jackson Hewitt suggested that taxpayers aren’t all that smitten with going the e-file route because of added costs and the difficulty it takes to correct a mistake. 

Tax preparers give the move a thumbs-down

Tax professionals were aghast at the IRS' decision to delete tax data. Paul Miller, Managing Partner & CPA of Miller & Co., LLP, told ConsumerAffairs that the IRS needs to be upfront with what data it's deleting.

"Of course this can cause more delays in processing returns, getting refunds, clearing notices etc. Taxpayers are totally frustrated, as calling the IRS is an impossible task. As professionals, we have a dedicated line and we still have to wait. This is going to increase the nightmare that already exists," he said.

Miller went on to note that the IRS eroded its reputation even further recently over an "enormous amount of fraud" that the agency has encountered. He said a number of his clients are getting letters to verify their identity because the IRS doesn’t know if the return filed is actually the return of the taxpayer. To combat that fraud, the IRS is now using ID Me to verify taxpayers. It is also requesting that taxpayers get an ID Protection PIN number.

ConsumerAffairs reached out to the IRS for comment, but the agency did not immediately respond to a request for comment.



The IRS has issued a statement that clarifies which tax forms were destroyed and why the agency took that step:

"In 2020, the IRS prioritized the processing of backlogged tax returns to get taxpayers their refunds and support other COVID-related relief over inputting the less than 1% of information documents – mostly Form 1099s –  that were submitted on paper," the agency told ConsumerAffairs.

"System constraints require IRS to process these paper forms by the end of the calendar year in which they were received. This meant that these returns could no longer be processed once filing season 2021 began. Not processing these information returns did not impact original return filing by taxpayers in any way as taxpayers received their own copy to use in filing an accurate return. The IRS is planning to process all paper information returns received in 2021 and 2022."

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