U.S. IRS clears massive backlog of unprocessed paper tax returns

By David Lawder

WASHINGTON (Reuters) - The U.S. Internal Revenue Service declared on Tuesday that it is completing its first "normal" tax filing season since the COVID-19 pandemic struck in 2020, with a backlog of millions of unprocessed returns from previous years fully cleared.

New IRS Commissioner Danny Werfel told reporters that the initial spending of $80 billion in new IRS funding helped purchase new scanning technology that has allowed paper returns to be digitized and quickly processed.

The COVID pandemic led to a three-month filing delay in 2020 followed by a one-month delay in 2021. The delays collided with staffing shortages to pile up a massive backlog of some 23.5 million individual and business tax returns by February 2022 that needed some form of manual processing, according to the National Taxpayer Advocate's office.

Ahead of the 2023 tax season, which has a midnight Tuesday filing deadline, the IRS hired 5,000 new taxpayer service agents to cut down call waiting times, and with the new scanning technology, it was able to clear the backlog of all error-free returns, Werfel said, leaving only those with questions, audits or other issues to be resolved.

A U.S. Treasury spokesperson said the IRS ended 2022 with a backlog of 1.4 million unprocessed individual and business returns and those were cleared by mid-March.

Including the new 5,000 taxpayer services personnel, the IRS plans to hire some nearly 20,000 new staff over two years as it deploys new funding from the climate-focused Inflation Reduction Act.

Republicans in the U.S. House of Representatives have targeted the $80 billion in new IRS funding as part of their spending cut demands in exchange for raising the $31.4 trillion U.S. debt ceiling.

The funding, aimed at beefing up enforcement and audits for wealthy taxpayers and business partnerships, modernizing computer systems and improving taxpayer services, comes on top of the agency's annual operating budget.

Werfel said the funding was making an "immediate, meaningful difference to deliver the service American taxpayers deserve on the phone, in person and online" with more improvements in coming years.

(Reporting by David Lawder; Editing by Robert Birsel)

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