IRS Lags on Amended Returns from Last Tax Season

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IRS begins sending balance due notices again.

Overall Performance Improved but Only Slight Improvement for Amended Returns and Taxpayer Correspondence

The report is in. The Internal Revenue Service improved its performance during this year’s tax season. They caught up on much of its backlog. Yet, they still are behind on dealing with all the amended returns and correspondence it received this year, according to a new report.

The mid-year report to Congress by National Taxpayer Advocate Erin Collins, found the IRS reduced its backlog of unprocessed paper-filed original tax returns from 13.3 million at the end of the 2022 filing season to 2.6 million at the close of the 2023 filing season. This is an 80% reduction that marked a return to pre-pandemic levels.

Unfortunately, the report also found the IRS is still not caught up on processing amended tax returns and taxpayer correspondence. As of June 3, the inventory of unprocessed paper-filed original returns has grown to 4.1 million, divided equally between individual returns and business returns. The inventory of amended returns was 3.6 million in April 2022 and 3.4 million in April 2023, a decrease of only 6% between the two periods.

The report found the IRS performed much better overall this year, however, thanks to the extra funding from the Inflation Reduction Act and the relative lack of major pandemic-related tax relief to deal with this year.

How Long Will You Be Waiting for an Amended Return?

For individual amended returns (Forms 1040-X), the IRS’s processing time was about seven months as of the end of the 2023 filing season. On the business side, a large portion of the delay in processing amended returns could be attributed to Employee Retention Credit claims. Many ERC claims are legitimate, but the IRS has also received many fraudulent claims and has placed promoter claims involving the ERC on its “Dirty Dozen” list of tax scams.

The IRS has not made notable progress in reducing its paper inventories in the Accounts Management function over the past year, according to the report. In April, it took the agency 130 days to process adjustment cases. That represents a substantial improvement from the 214 days it took last year, but it’s still well above the standard processing time of 45 days.

For victims of identity theft, the delays have been especially long and frustrating. The average cycle time for ID theft cases closed in April 2023 was 436 days, amounting to nearly 15 months. That is about three months longer than the 362-day cycle time for cases closed in April 2022.