In March of 2021, the IRS shocked taxpayers and tax preparers alike when an audit uncovered that the IRS office in Ogden, UT, had destroyed an estimated 30 million paper-filed information documents.
Yes, 30 MILLION.
What are the possible consequences of this mass destruction?
The IRS asserts that the data that was destroyed included only informational pages, like 1099s and W-2s. Officials insist that no actual tax return filings were destroyed. While neither K&R nor any other firm can verify that claim, we suspect that missing data will worsen the already overwhelming delays in processing returns.
For example, when a taxpayer’s return includes wages paid by an employer, the IRS has a system in place to compare the wages the taxpayer reports with the wages reported by the employer on the W-2. The missing data causes a mismatch that could trigger more notices sent by the IRS and longer delays in issuing refunds.
The IRS isn’t worried about the consequences: officials stated that the onus for providing proof of correct amounts rests on the taxpayer.
In the event of an IRS audit, how many average Americans could produce a 1099 from 3 years ago without major headaches?
Why did this happen?
The constraints of outdated technology. The IRS uses an imaging processing system to convert paper informational returns into a usable data format. However, the documents must be processed prior to the end of the year they were received in. Once the 2021 filing season began, documents received in 2020 could no longer be processed. Thus, the unprocessed documents were destroyed.
In an official statement, the IRS asserted that it intends to process all paper information returns received in 2021 and 2022. Only time will prove or disprove that promise. We do know that despite encouraging taxpayers to file electronically, the IRS continues to require paper filing of many documents including some amended tax returns.
What can your accounting firm do to protect you?
In times when taxpayers can’t rely on our government agencies, your accounting firm should protect you as a client by maintaining historical records with an emphasis on security.
Jessica, one of our staff members, recalls a very different experience as a customer at a big-name tax preparation service:
“When my first daughter was a toddler and my second was on the way, my spare moments were spent getting as much rest as possible. I didn’t have the energy the calculate the tax implications of selling my house in Texas! So, I made an appointment with another preparer for the first and only time.
I remember at the end of my appointment, the employee handed me a nice-looking folder with my documents and a printout of my tax return. . . that is the last time I remember seeing that folder. I’m sure that it’s in my house, tucked away somewhere.”
At K&R, we made the commitment several years ago to transition to a paperless office. We don’t handle original hard copies which could be damaged, lost, or stolen. Our clients have access to both their submissions and completed tax returns 24 hours a day through our online client portal.
As K&R clients face relocations, natural disasters, life changes, and even governmental misconduct, their tax information remains stored in one safe location.
