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Tax pros ‘horrified’ by IRS decision to destroy data on 30 million filers

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An audit by the Treasury Inspector General for Tax Administration revealed the IRS has tossed data for thousands and thousands of payers, sparking anger from the tax community.

The fabric, generally known as paper-filed information returns in accounting parlance, is distributed yearly by employers and financial institutions, and covers taxable activity, similar to W-2 forms, with copies sent to taxpayers and the IRS.

“The continued inability to process backlogs of paper-filed tax returns contributed to management’s decision to destroy an estimated 30 million paper-filed information return documents in March 2021,” in line with the report.

The IRS backlog, created by years of budget cuts, understaffing, pandemic-related office closures and added duties, is anticipated to clear by December, in line with Commissioner Charles Rettig.

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While the report doesn’t specify which information returns the agency chucked, the news has triggered indignant responses from tax professionals, particularly after one other difficult filing season.

“I used to be horrified after I read the report describing the destruction of paper-filed information returns,” said Phyllis Jo Kubey, a Recent York-based enrolled agent and president of the Recent York State Society of Enrolled Agents.

CNBC has reached out to the IRS for comment.

Missing information returns could cause a “mismatch” on the IRS, delaying refunds since the agency cannot confirm details on a taxpayer’s returns, she explained.

While the eventual consequences of the choice are unknown, tax professionals have long complained concerning the stream of automated IRS notices, with limited options to succeed in the agency. 

“If they are not putting those into the system, there’s going to be discrepancies, which implies potential notices which might be sent out,” said Dan Herron, a San Luis Obispo, California-based certified financial planner and CPA with Elemental Wealth Advisors.

Although the IRS halted greater than a dozen kinds of automated notices in February, Herron says the constant correspondence remains to be creating headaches for taxpayers and advisors.
Brian Streig, a CPA with Calhoun, Thomson and Matza LLP in Austin, Texas, said the news was a “break of our trust,” pointing to the burden on the business community.

“Small businesses stress out every yr in January attempting to accurately prepare these informational returns and get them filed on time,” he said. “To see the IRS just destroy these is nearly just like the IRS admitting they do not really care.” 

Larry Harris, a CFP and director of tax services at Parsec Financial in Asheville, North Carolina, voiced similar concerns, questioning the agency’s ability to remain compliant. 

“It just further damages the IRS’ popularity within the business community and in the general public,” he added.

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