IRS business tax return backlog explodes to 7.9M paper filings amid COVID-19 pandemic

Officials said the forced closure of tax processing centers in April 2020 contributed to the backlog

Complications related to the COVID-19 pandemic resulted in a massive backlog at the Internal Revenue Service in the processing of business-related tax returns in 2020, according to a report from the Treasury Inspector General for Tax Administration.

The IRS amassed more than 7.9 million paper tax returns from businesses that needed to be processed as of December 31, 2020. By comparison, the agency had less than 240,000 outstanding returns on the same day one year earlier.

Officials said the forced closure of tax processing centers in April 2020 contributed to the backlog. The report also noted the impact of the Treasury Department’s decision to extend the filing deadline last year to July 15.

"In response to COVID-19, the IRS took unprecedented and drastic actions to protect the health and safety of its employees and the taxpaying public," the report said.

The inspector general’s report also highlighted some inaccuracies in the way returns were processed. The errors included 211 "Failure to Pay" penalties that should not have been implemented and 1,256 tax penalties that were "incorrectly assessed" from April 1, 2020, through December 31, 2020.

In response to the report, the IRS said it has reduced the backlog of outstanding business tax returns to approximately 291,000 as of July this year. Kenneth Corbin, the commissioner of the IRS wage and investment division, said the agency has taken several steps to address inefficiencies since the pandemic began.


Aside from streamlining and improving work-from-home capabilities for critical IRS staffers, Corbin said the agency has hired 3,500 of a planned 5,500 new employees ahead of 2022 filing season. 

"We took, and continue to take, innovative actions to address the accumulation of inventory while simultaneously protecting the health and safety of our employees and the taxpaying public," Corbin said in a letter responding to the report.