IRS DESTROYS INFORMATION RETURNS:
This headline has spanned across the tax publications, blogs and national news regarding information returns submitted to the IRS for the 2020 tax year. The decision to destroy thirty million unprocessed information returns early last year was made only after the IRS determined it would not have any adverse effects on taxpayers, according to the agency.
The tax agency, unable to keep up with an ever-increasing mountain of unopened paper tax returns and information returns at the height of the pandemic, opted to destroy about 30 million information return documents, including Forms 1099-MISC, “Miscellaneous Information,” according to TIGTA’s report ( A Service-Wide Strategy Is Needed to Address Challenges Limiting Growth in Business Tax Return Electronic Filing ). Those documents are typically used for identifying situations in which taxpayers may have inaccurately reported income.
Following is a statement issued by the IRS regarding this issue.
IRS Statement — Information Returns
May 13, 2022
We processed 3.2 billion information returns in 2020. Information returns are not tax returns, and they are documents submitted to the IRS by third-party payors, not taxpayers. 99% of the information returns we used were matched to corresponding tax returns and processed. The remaining 1% of those documents were destroyed due to a software limitation and to make room for new documents relevant to the pending 2021 filing season.
There were no negative taxpayer consequences as a result of this action. Taxpayers or payers have not been and will not be subject to penalties resulting from this action.
Broadly, this situation reflects the significant issues posed by antiquated IRS technology. In 2020, the IRS prioritized the processing of backlogged tax returns to get taxpayers their refunds and support other COVID related relief over inputting the less than 1% of information documents – mostly Form 1099s – that were submitted on paper.
System constraints require IRS to process these paper forms by the end of the calendar year in which they were received. This meant that these returns could no longer be processed once filing season 2021 began. Not processing these information returns did not impact original return filing by taxpayers in any way as taxpayers received their own copy to use in filing an accurate return.
The IRS processed all paper information returns received in 2021 and plans to process those received in 2022.