IRS holding over 29M unprocessed tax returns, delaying refunds for many low-income Americans

The IRS is holding more than 29 million tax returns for manual processing, delaying refunds for many low-income Americans as the agency struggles to adopt a slew of coronavirus pandemic-related changes, according to its internal watchdog.

"As one would expect, IRS employees are stretched thin working through the manual processing of these returns," National Taxpayer Advocate Erin Collins wrote in a recent blog post. "So if a taxpayer’s return is pulled for manual processing, there will be delays."

At least 8 million returns have been placed in "suspense" until an IRS employee can review them to ensure the taxpayers received the fully promised stimulus check money. IRS officials are also calculating the earned income tax credit and the child tax credit – two tax credits for lower-income Americans that were expanded in President Biden's $1.9 trillion coronavirus relief package.

On top of that, 5.3 million 2019 or 2020 paper returns are awaiting manual processing, while 4.7 million returns have processing errors or fraud identification issues that require a response from the taxpayer. The IRS withheld 11 million business returns for manual processing.

"From a taxpayer’s perspective, it feels like their return has fallen into a black hole: they do not know what is going on, when they will get their refund, why it is being delayed, or how to get answers or help," Collins wrote.

That's because, in addition to a high volume of 2020 returns that need manual processing, the IRS is grappling with a massive backlog of processed 2019 paper tax returns and the herculean task of delivering millions of stimulus checks.

Collins estimated that just 1 out of every 50 calls to the IRS customer service representative service line is being answered.

IRS Commissioner Chuck Rettig previously told lawmakers during congressional testimony that the agency had received about 21.4 million taxpayer calls by April 2.

(Photo credit should read SAUL LOEB/AFP via Getty Images)

"There was no way to predict the pandemic and the impact it would have on our call volume, filing season, and hiring," Rettig said at the time. "We are still working through the impacts of COVID-19, which created staffing shortages and closures, and we have been experiencing a much higher-than-expected call volume, coupled with an increase in call handling time caused by greater call complexity due to three rounds of EIPs and other tax law changes."

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In March, the IRS delayed the main April 15 tax-filing deadline until May 17, giving most Americans more time to prepare their filings this tax season amid a slew of pandemic-related policy changes. It also postponed the deadline for people to contribute to their individual retirement accounts and health savings accounts until May 17. 

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