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TIGTA: IRS Lagging in Tax Adjustment Documentation Processing

S.J. Steinhardt
Published Date:
Jun 10, 2024

The IRS has a “significant” backlog of unprocessed tax adjustments documentation, and lacks a strategy for dealing with it, a report by the Treasury Inspector General for Tax Administration (TIGTA) found. 

A tax adjustment is needed in the case of an error on a tax return during processing or if a taxpayer or tax preparer files an amended tax return, according to Accounting Today.

When a tax adjustment is made on a business or individual taxpayer's tax account, the IRS office that makes the adjustment needs to send all of the documentation supporting the adjustment to one of its tax processing centers. Once the adjustment is made, a Form 5147, Integrated Data Retrieval System Transactions Record, is printed at the tax processing center and paired with the source documents supporting the tax adjustment transaction.

As of last November, the IRS had more than 2.6 million source documents  that needed to be associated with a corresponding Form 5147, which allows the IRS to identify and retrieve the source documentation for a tax adjustment from storage, TIGTA found, according to Accounting Today. That backlog represents an increase of 241 percent in the inventory of such documents since May 2020.

TIGTA found “significant inaccuracies” in the reporting of these inventories. For example, for the week ending October 27, 2023, the IRS inaccurately reported a closure of over 600,000 adjustment source documents at the Ogden, Utah, Tax Processing Center, prompting IRS to report that true number of closures was around 96,000. In addition, in September 2023, the Ogden Tax Processing Center sent three shipments of adjustment source documentation totaling 341,773 to the Federal Records Center out of numerical order. The IRS’s contract with the National Archives and Records Administration requires processed adjustment source documents be placed in numerical order before they are sent to the Federal Records Center.

The report recommended that the commissioner of the IRS's Wage and Investment Division take a comprehensive inventory of its adjustment source documents in order to update and correct current inventory records. It also recommended that the commissioner ensure that management personnel review the Miscellaneous Monitoring Report; finalize and execute a plan to rebalance the adjustment source documentation workload across the tax processing centers; develop a strategy to resolve the adjustment source documentation backlog; coordinate with the Federal Records Center to determine the steps that need to be taken to correct the adjustment source documents that have already been sent out of numerical order; ensure that all adjustment case files sent to the Federal Records Center are in numerical order; and develop policies and procedures to ensure the accuracy of shipments between Tax Processing Centers. The IRS agreed with all the recommendations in this report.

"The association of Form 5147 with source documents is a time-consuming activity and, as a residual effect of the pandemic conditions, we are continuing to process an unusually large inventory of documents," wrote Kenneth Corbin, commissioner of the IRS's Wage and Investment Division, in response to the report, according to Accounting Today.

He noted that the IRS eliminated its backlog of "original tax returns" to be processed in January 2023 and has since reassigned many employees from front-line processing to the Files Function. The IRS has also been taken advantage of the extra funding from the Inflation Reduction Act of 2022 to improve its technology, including a Document Upload Tool that enables taxpayers to respond to IRS notices that request more information by uploading the documents directly to the IRS's systems instead of mailing in paper documents.

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