In March 2021, the IRS destroyed approximately 30 million paper-filed information returns at its Ogden, Utah, processing center. The incident, uncovered during a Treasury Inspector General for Tax Administration (TIGTA) audit, raised serious concerns about taxpayer data, IRS processing backlogs, and the consequences of relying on outdated paper-based systems.

Years later, the full picture has emerged. TIGTA concluded that the destruction was a reasonable decision under pandemic circumstances, but the episode remains a landmark case study in why electronic filing, proper recordkeeping, and professional tax preparation matter more than ever.

What Are IRS Information Returns?

Information returns are tax documents that third parties (employers, banks, clients, brokers, and other payers) file with the IRS to report income, payments, and certain transactions. They are not the same as your personal income tax return (Form 1040). Instead, they serve as a verification layer the IRS uses to match what taxpayers report against what payers report.

Common types of information returns include:

  • Form 1099-MISC, used to report miscellaneous income such as rents, royalties, and other payments
  • Form 1099-NEC, used to report nonemployee compensation paid to independent contractors
  • Form 1099-INT, used to report interest income from banks and financial institutions
  • Form 1099-DIV, used to report dividend income and capital gains distributions from stock and mutual fund holdings
  • Form 1099-R, used to report distributions from pensions, annuities, retirement plans, IRAs, and insurance contracts
  • Form 1099-OID, used to report original issue discount income on bonds and other debt instruments
  • Form 1099-PATR, used to report taxable distributions such as patronage dividends from cooperatives
  • Form 1099-K, used to report payment card and third-party network transactions
  • Form W-2, the employer statement used to report wages and withholding (filed through the Social Security Administration)
  • Form 1098, used to report mortgage interest, student loan interest, and tuition payments
  • Forms 1095-B and 1095-C, used for health insurance coverage reporting under the Affordable Care Act

The General Instructions for Certain Information Returns describe the reporting requirements, deadlines, and transmittal procedures for each form. Paper submissions of information returns must include Form 1096, the annual summary and transmittal form. The IRS also publishes Publication 1220 with specifications for electronic filing through the FIRE System.

The IRS processes billions of these information return forms every year. In tax year 2019 alone, the agency processed approximately 3.2 billion information returns. The destroyed batch represented roughly 1% of that total.

What Happened at the Ogden Processing Center

During the COVID-19 pandemic, the IRS experienced unprecedented backlogs of unprocessed paper-filed information returns. By October 2020, IRS management realized that a large volume of paper-filed information returns received during 2020 could not be processed before year-end deadlines.

The root cause was a software limitation. The IRS used a legacy imaging system (the Generalized Unpostable Framework) to convert paper information returns into usable digital data. This system had to be taken offline at the end of each calendar year for programming updates to prepare for the next filing season. Returns received in 2020 that were not scanned before the system went offline could no longer be processed with respect to IRS matching programs.

After consulting with the Office of Chief Counsel and the Records Office, the IRS destroyed the unprocessed information returns using its standard procedures for sensitive classified waste destruction. The documents were transported to shredding facilities in locked trucks and processed in access-controlled areas.

The destroyed information returns were primarily in the Form 1099 series. The IRS stated that no individual income tax returns (Forms 1040) were destroyed.

What TIGTA Found: The Actual Impact on Taxpayers

TIGTA conducted a follow-up audit (Report 2024-40-6007, published November 2023) to assess the real-world consequences of the destruction. The findings were more measured than initial fears suggested:

  • Approximately 1.3 million payers may have had their information returns destroyed
  • Of 50,732 potential examination cases the IRS identified during that period, only 484 (about 1%) may have been selected because the supporting information returns had been destroyed
  • Few, if any, payers were assessed a failure-to-file penalty for an information return that the IRS had destroyed
  • TIGTA found the IRS's decision to destroy the information returns was "reasonable" given the pandemic circumstances

The IRS also confirmed that it successfully processed all paper information returns received in 2021 and 2022, as it had promised.

How the IRS Has Addressed the Problem

The incident accelerated several modernization efforts already underway at the IRS:

Lowered e-filing threshold. Effective January 1, 2024, Treasury Decision 9972 reduced the mandatory e-filing threshold from 250 information returns to just 10 per year. Any business or payer filing 10 or more information returns of any type is now required to file electronically. This code change dramatically reduces the volume of paper documents flowing into IRS processing centers.

Paperless processing initiative. In August 2023, the IRS launched a paperless processing initiative using Inflation Reduction Act funding. By filing season 2025, the IRS achieved paperless processing, meaning all paper-filed returns are digitized upon receipt. This eliminates the backlog risk that led to the 2021 destruction.

IRIS (Information Returns Intake System). The IRS developed a free online portal (IRIS) that allows any filer to submit Forms 1099 electronically without purchasing special software. This tool, available since 2023, removes a key barrier that previously drove small businesses to file information returns on paper. Foreign persons and entities with U.S. information reporting obligations will also find IRIS useful.

Information Return Filing Requirements and Deadlines

If you pay independent contractors, earn interest or dividend income, hold stock that generates capital gains, or receive other reportable payments, understanding information return deadlines helps you stay compliant and avoid penalties.

For tax year 2025 (information returns filed in early 2026), key deadlines include:

  • Form 1099-NEC: due February 2, 2026 (paper and electronic)
  • Forms 1099-MISC, 1099-INT, 1099-DIV, 1099-OID, 1099-PATR, and most other 1099 series: due March 2, 2026 (paper) or March 31, 2026 (electronic)
  • Forms 5498 (IRA contribution statements): due June 1, 2026
  • Form W-2 (employer wage statement): due January 31, 2026 (filed with the Social Security Administration)
  • Health insurance coverage forms (1095-B and 1095-C): recipient statement due March 2, 2026

Penalties for late or incorrect information returns range from $60 to $310 per return depending on how late the correction is made, with a maximum annual penalty that can reach $3,783,500 for large businesses. The penalty structure is set by IRC Section 6721 and is adjusted annually for inflation. A separate penalty under Section 6722 applies for each incorrect or missing recipient statement.

What This Means for Arizona Taxpayers and Business Owners

Arizona taxpayers should be aware that the Arizona Department of Revenue (ADOR) receives information return data from the IRS. If the IRS makes adjustments to your federal income tax return based on information return matching (such as through a CP2000 notice), you are required to report those changes to Arizona within 90 days of finalization under A.R.S. Section 43-327.

Arizona business owners who file 10 or more information returns are required to e-file with the IRS. Arizona itself does not require separate state-level filing of most information returns (the state receives data through federal-state data sharing), but employer withholding reconciliation forms (Form A1-R) are filed annually with ADOR. Employers should consult ADOR's withholding instructions for current deadlines and reporting requirements.

Frequently Asked Questions

Were any individual income tax returns (Form 1040) destroyed?

No. The IRS confirmed, and TIGTA verified, that only third-party information returns (primarily Forms 1099) were destroyed. No individual income tax returns were affected.

Could I be audited because the IRS lost my information return?

It is unlikely. TIGTA found that fewer than 500 potential examination cases (out of more than 50,000 reviewed) may have been influenced by the missing data. The IRS stated that taxpayers will not face penalties resulting from the agency's own destruction of information return documents.

Do I still need to keep copies of my information returns?

Yes. The IRS recommends retaining tax records for at least three years from the filing date (or two years from the date the tax was paid, whichever is later). If unreported income exceeds 25% of gross income, the retention period extends to six years. Regardless of IRS processing issues, the burden of proof for reported income rests on the taxpayer.

What is the current e-filing threshold for information returns?

Since January 1, 2024, any filer submitting 10 or more information returns of any type during a calendar year is required to e-file. The threshold applies across all information return form types combined (not per form type). Hardship waivers are available in limited circumstances.

What if I receive a CP2000 notice related to an information return?

A CP2000 is an underreporter notice, not a bill or an audit. You have 30 days from the notice date to respond (60 days if you live outside the U.S.). You can agree, partially agree, or disagree with documentation. If you receive a CP2000 notice, a tax professional experienced in IRS representation can help you respond effectively.

How K&R Taxes Protects Your Records

The 2021 information return destruction incident underscores why recordkeeping matters. Government agencies can lose documents. Natural disasters can destroy paper files. Moves and life changes can scatter important paperwork.

At K&R Taxes, we operate a fully paperless office. We do not handle original hard copies that could be damaged, lost, or stolen. Every client has 24/7 access to both their submissions and completed tax returns through our secure online client portal.

Whether you need help with tax preparation and planning, IRS representation, business accounting, or payroll and employer reporting services, our team ensures your records are secure and accessible whenever you need them.

Contact K&R Taxes to learn how we can help you stay organized and compliant with all federal and Arizona information reporting requirements.