By Noah Rothstein

 

The Internal Revenue Service (IRS) is grappling with a massive backlog of 35 million unprocessed tax returns, according to a new report from a government watchdog. The backlog will cause millions of individual and business taxpayers to wait to receive potentially critical federal refunds.

 

The current backlog includes 17 million paper tax returns that are not processed and 16 million other returns requiring a review. An additional 2.7 million amended tax returns are still not processed. The size of the backlog grew four times compared to 2019.

 

About 70% of the individual returns processed so far have been due refunds, with an average size of $2,827.

 

The IRS finds itself laden with new pandemic-era duties to disburse money to impacted American individuals and families after the passage of multiple COVID stimulus packages in 2020 and the American Rescue Plan this year. Now, it is charged with getting child tax credit payments out to families who qualify on July 15.

 

“For taxpayers who can afford to wait, the best advice is to be patient and give the IRS time to work through its processing backlog,” Erin M. Collins, the national taxpayer advocate, said in her midyear report to Congress. “But particularly for low-income taxpayers and small businesses operating on the margin, refund delays can impose significant financial hardships.”

 

Over the past 15 months, the agency has processed 475 million stimulus payments worth $807 billion.

 

President Joe Biden has proposed boosting the IRS budget by $80 billion over 10 years, with much of the money going toward stepped-up enforcement. In addition, his bipartisan infrastructure deal with senators calls for as much as $40 billion in additional funding for the agency. While those funding increases haven’t been enacted, House Appropriations Committee Democrats last week proposed a $1.7 billion increase in the IRS budget for 2022. 

 

IRS funding fell by 20% in inflation-adjusted terms from 2010 to 2019, and its staff shrank by 22% from its 2010 peak to 2018, according to a report last year by the Congressional Budget Office.

 

John Koskinen, a former IRS commissioner under Presidents Barack Obama and Donald Trump, noted that the new numbers reinforce the need for additional IRS funding. 

 

“It’s a problem, but nobody should be surprised. You can’t keep loading more things on an agency without enough people and expect things to go smoothly,” he said.