I felt a disturbance in the Force; it was as if thousands of accountants let out a collective scream as the Internal Revenue Service destroyed the filing data for 30 million filers (without recording it first), because it would have been difficult to enter all the information taxpayers had submitted on paper instead of e-filing.
According to a report, the IRS torched the filing data in March 2021 to clear the backlog created by shutting down during the pandemic.
Phyllis Jo Kubey, a New York-based enrolled agent and president of the New York State Society of Enrolled Agents, responded to the news saying,
I was horrified when I read the report describing the destruction of paper-filed information returns. Missing information returns can cause a "mismatch" at the IRS, delaying refunds because the agency can't verify details on a taxpayer's returns.
The data that was destroyed seems to be paper-filed information returns that businesses are required to submit, which covers taxable activities like W-2 forms. If the copy that is sent to the taxpayer does not match the one sent to the IRS, it creates a mismatch, and the IRS starts sending out automated notices that you're in trouble.
Tax accountants have been complaining about these automated notices for quite a while now, as the IRS computers continue to suggest they did not receive filers' paper-filed information, and IRS phone lines remain tied up due to employee shortages in the organization.
Dan Herron, a San Luis Obispo, California-based certified financial planner and CPA with Elemental Wealth Advisors explained.
"If they're not putting those into the system, there's going to be discrepancies, which means potential notices that are sent out"
The IRS said that they halted more than a dozen types of automated responses, including unfiled tax return notices, and they said
"Taxpayers or payers have not been and will not be subject to penalties resulting from this action."
But tax filers and accountants have already been penalized. Having slogged through the filing gauntlet over the last two years, their time and peace of mind has been eaten away by the IRS's automated letters regarding penalties, asset forfeiture, and potential jail time.
Brian Streig, a CPA with Calhoun, Thomson and Matza LLP in Austin, Texas, said the news was a "break of our trust."
"Small businesses stress out every year in January trying to accurately prepare these informational returns and get them filed on time," he said. "To see the IRS just destroy these is almost like the IRS admitting they don't really care."
I imagine the IRS shrugged at that and said, "We're the IRS. We thought our not caring was a given. Now, let's clear some more of this backlog."
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