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IRS fell short in processing some tax returns and stimulus checks, report finds

Many consumers had to wait longer than usual because of difficulties caused by the COVID-19 pandemic

Photo (c) Thana Prasongsin - Getty Images
Have you received your 2019 tax refund or your stimulus check on time? If not, then you’re not alone. In fact, a new report given to Congress by the Internal Revenue Service’s (IRS) Taxpayer Advocate division says you’re one of millions who experienced that setback. Unfortunately, you may also be one of the many who felt like they were being left in the dark.

The report gave the IRS kudos for managing the 2020 filing season and accurately paying the significant majority of Economic Impact Payments (EIPs), but it also noted that some taxpayers experienced major problems and that the agency didn’t do everything it could have done when it came to being transparent about its struggles. 

One of those struggles was operating during the COVID-19 pandemic. As a result of the coronavirus, paper tax returns and correspondence from taxpayers sat unopened in trailers for months. Taxpayers had a difficult time getting through to the IRS by phone, and they couldn’t get in-person assistance at Taxpayer Assistance Centers.

The bad news

The Taxpayer Advocate Division said the IRS was unable to open and process roughly 16 million 2020 paper tax returns in a timely manner. Its report found that the majority of those taxpayers likely were entitled to refunds, yet they had to wait longer than usual to receive them.

According to an update posted on the IRS website, there were still 7.1 million unprocessed individual returns and 2.3 million unprocessed business returns as of November 24, 2020, with some dated as early as April 15.

The second major issue stemmed from the IRS’ fraud detection filters. The report noted that the IRS’ fraud filters have been generating high false-positive rates for many years, leading to refund delays. Overall, the IRS’ fraud filters flagged 5.2 million returns claiming refunds, many of which took as long as 120 days to verify identity or income.

Adding to the IRS’ challenges was the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which put the responsibility of delivering more than 160 million stimulus checks squarely on the agency’s shoulders. 

“This was no easy task. Eligibility was subject to an income phaseout based on filed tax returns, yet millions of individuals who did not file tax returns were also eligible to receive EIPs,” the report said. 

The good news 

Not all taxpayers were affected by the slowdown. The report stated that taxpayers who filed returns electronically had a much easier time securing refunds and stimulus payments.

“Despite these unprecedented challenges, the IRS generally performed well. In most cases, the IRS can effectively handle whatever it can automate, and this year was no exception. As of November 20, 2020, the IRS had received about 169 million individual income tax returns, and of those, about 153 million (91 percent) had been e-filed,” the report said.

“For taxpayers who e-filed, the IRS processed the overwhelming majority of returns timely and issued the resulting refunds timely. The same was generally true of EIPs — most eligible individuals received their stimulus payments timely and in the correct amounts. The IRS deserves much credit for its overall performance in 2020.”

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