Electronic tax

Report: IRS Destroyed 30 Million Paper Tax Documents

An audit by the Treasury Inspector General for Tax Administration (TIGTA) found that the Internal Revenue Service made the intentional decision “to destroy approximately 30 million paper information return documents in March 2021”. TIGTA says the agency did this because of its inability to catch up on paper filing backlogs.

The report does not say that the 1040 filers’ actual income tax forms were destroyed, only that the information returns used to support the tax returns were. “The IRS uses these documents to perform post-processing compliance matches to identify taxpayers who are not accurately reporting their income.”

Common information returns include Forms W-2, 1099, and 1098, among others.

With the supporting documents destroyed, the IRS will likely miss many of the documents it needs to adequately verify the accuracy of the statements, and may also end up running out of sufficient material for tax audits. However, the IRS may ask taxpayers to provide relevant evidence or copies of documents used to support their tax returns, including copies of files that the IRS may have destroyed.

TIGTA has previously reported that there are steps the IRS could take to reduce paper filings and/or convert paper tax returns to electronic format. In addition, TIGTA reported that although e-filing (e-filing) of corporate tax returns has continued to increase, the rate of e-filing is still lower than that of personal tax returns. Finally, repeated efforts to modernize the paper processing of tax returns have been unsuccessful.

In other findings, TIGTA said it has taken several steps to increase e-filing, but the pandemic has magnified the backlog of paper tax returns and records. This, TIGTA noted, suggests the IRS needs to create an “agency-wide strategy to further increase e-filing.”

TIGTA made three general recommendations as a result of its audit:

  1. Develop a Service-wide strategy to prioritize and integrate all e-filing forms;
  2. Develop processes and procedures to identify and address potentially non-compliant business registrants;
  3. Develop processes and procedures to ensure that penalties are consistently imposed on filing companies that fail to comply with e-filing requirements.

The report of the Inspector General of the Treasury for Tax Administration is at:https://www.treasury.gov/tigta/auditreports/2022reports/202240036en.pdf