IRS Destroyed 30 Million Paper Tax Documents Due to Backlog

That's one way to handle a burdensome load.

Ever come back to work from vacation to find a heaping pile of paperwork taking over your desk? At that point, you have choices. You could try to organize that pile and tackle it in order of priority, or you could simply run it over to the nearest trash can, dump it, and hope that no one notices.

The latter is generally not an advisable route -- but apparently no one told the IRS. In a recent report by the Treasury Inspector General for Tax Administration (TIGTA), the IRS apparently took it upon itself to destroy an estimated 30 million paper-filed information return documents in March 2021.

The reason? It was simply too backlogged and couldn't process all of that paperwork.

A surprising course of action

The IRS has long encouraged filers to submit their tax returns electronically. Doing so spares the agency, which is sorely underfunded, the extra work of manually processing those documents.

But many people continue to file on paper because it's what they're used to. And until the IRS takes that option away, it's something filers have the right to do.

But last year, the IRS found itself in a pickle. In 2020, it made the (understandable) decision to shutter its field offices during the COVID-19 outbreak. Due to not having staff around to process mail, the IRS wound up with a major backlog on its hands by early 2021. And to address that backlog, the agency opted to destroy a good 30 million paper tax documents.

Now to be clear, this isn't to say the IRS destroyed actual income tax returns. But it may have destroyed documents used to support tax returns, like W-2 and 1099 forms.

And that's problematic. Without those supporting documents, the IRS may have a hard time verifying information on older tax returns it's yet to process. What’s more, the IRS generally gets three years to audit a tax return. What may now happen is that some filers could get notices calling for them to produce old tax documents for audit purposes -- documents the IRS decided to get rid of.

The takeaway for tax filers

The COVID-19 pandemic may have led to an unprecedented backlog on the part of the IRS, to the point where the agency had to go to extremes. But all of this underscores the importance of filing taxes electronically.

Electronically filed tax returns don't have to be processed manually, so they're easier for the IRS to manage. And also, even in the best of times, it's quicker to process a return filed electronically than one submitted on paper. In fact, if you're due a refund, that money will typically hit your bank account within three weeks of filing an electronic return. With a paper return, you could be looking at six weeks until you get your money.

Filing electronically also reduces your likelihood of making an error on your taxes -- and that alone could be enough to spare you an audit. Granted, the IRS doesn't exactly have the bandwidth to conduct audits on a major scale these days. But it's still worth filing electronically for that reason alone.