Backlogged! Your employment tax returns unprocessed

Your employment tax returns may have been among the millions of unprocessed forms identified in a recent audit of IRS (yes, even IRS gets audited).

Topping the list of unprocessed business tax returns? Form 941 and other forms in the 94x series – with 5,497,383 paper employment tax returns on hold as of Dec. 31, 2020. Compare that to 167,906 one year prior.

Some of the other biggies include:

• Extension requests – for example, Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns (732,070 accumulated)
• Corporate returns – for example, Form 1120, U.S. Corporation Income Tax Return (694,866 waiting to be processed), and
• Tax exempt forms – for example, Form 990, Return of Organization Exempt From Income Tax (376,826 piled up).

All together, at the end of 2020, IRS still needed to process 7.9 million paper-filed business returns.

Treasury Inspector General for Tax Administration (TIGTA) conducted the audit in the aftermath of COVID-19. Just as many businesses closed their doors for part of 2020, IRS temporarily shut down some of its tax processing centers. Also during the coronavirus pandemic, IRS bumped some business tax filing and payment deadlines back three months to July 15, 2020. All that added up to a significant backlog of Form 941 and other returns, TIGTA noted in its audit report.

Bottom line impact

If you received a balance due notice in error, you’re not alone. Those notices may have included penalties for failure to pay and failure to file an employment tax return.

The impact on the bottom line went further. Refunds lagged. Tax credits claimed on Form 941 reached a standstill. Businesses faced uncertainty and frustration.

However, the situation has started to improve and should continue to do so. The audit report, Effects of the COVID-19 Pandemic on Business Tax Return Processing Operations, included recommendations. One of them: IRS should ensure that it fixes any incorrectly assessed estimated tax penalties.

Agreed, said IRS.