IRS faces huge backlog of business returns

The Internal Revenue Service is facing a massive backlog of 8 million paper business tax returns. That’s an increase of more than 3,000 percent compared to the same period in 2019 before the pandemic threw the world into disarray. Some cash-strapped companies rely on tax refunds to stay afloat. Given the IRS backlog, such companies may not get the needed funds in time.

Like many other organizations, the IRS took steps to protect employees during the COVID-19 pandemic. This slowed down tax return processing, especially for paper returns. While the IRS has tried to add staff, a tight labor market has impeded efforts.

Have problems? Need to talk with the IRS? In years past, contacting the IRS was relatively straightforward. The IRS provides help for people struggling to fill out their returns, and also contact points to settle issues. You could typically call and talk with a live representative.

Right now, however, the phones are ringing but are seldom answered. Compared to 2019, the IRS received four times as many calls from taxpayers looking for assistance in 2021. At one point, the IRS was receiving 1,500 calls per second. While statistics for business taxpayers aren’t readily available, just 3 percent of calls to the IRS’s 1040 line were answered.

Businesses and individuals that need to resolve issues with past tax returns are also struggling to contact the IRS. While they wait, interest may continue to accrue on past-due balances.

Besides processing taxes, the IRS has to remain on top of tax law changes, stimulus programs, and other measures. The government agency processed roughly 475 million Economic Impact Payments worth about $800 million during the pandemic. These stimulus payments likely propped up consumer spending. However, if consumers can’t get stimulus payments and refunds quickly, it may put a crimp on consumer spending, some observers say.