The IRS will fall short of its goal to clear its backlog of unprocessed tax returns, a report by the Treasury Inspector General for Tax Administration (TIGTA) has found.

The interim review assessed the IRS’s plan, announced in March 2022, to return the IRS to pre-pandemic inventory levels by the end of calendar year 2022. It found that the IRS had 9.6 million returns awaiting processing or other resolution as of Oct. 28, 2022.

“Our assessment of the remaining inventory and increased production levels indicates that the IRS will not meet all of its goals by the end of Calendar Year 2022 and will continue to have a backlog into the 2023 Filing Season,” the report read.

The TIGTA report noted that the IRS took several steps to address staffing needs at the tax processing centers and accounts management function during the 2022 filing season, such as reassigning employees, using its direct-hire authority and hiring contract employees to perform clerical functions.

The IRS has been faulted for poor customer service in recent weeks, by a Government Accountability Office report and a letter from the National Association of Enrolled Agents (NAEA) to Acting Commissioner Douglas O’Donnell.

TIGTA also expressed concern over the processing of third-party information returns. “As of October 5, 2022, almost 18.7 million information returns needed to be processed with a completion goal of December 23, 2022,” the report read.

A potential spike in information returns, caused by a new requirement regarding the filing of Forms 1099-K for payment app transactions, may add to the IRS’s woes. A lawyer representing a coalition of businesses told the New York Times that as many as 50 million taxpayers would get new tax statements for the first time, warning of “a tsunami of 1099s going out to people who will be confused.”

“The IRS has worked through more tax return inventory in the last 12 months than at any 12-month period in its history,” the IRS said in a statement emailed to Accounting Today. "This unprecedented effort has been through an all-hands-on-deck approach, including reassigning more than 1,600 staff members to process paper (outside their normal roles), as well as hiring and onboarding 15,000 new staff in Fiscal Year 2022 and so far in Fiscal Year 2023. The data presented in TIGTA's report does not reflect our most recent progress. Much work has been done in the last several weeks and will continue to be done in the weeks ahead to make progress to address the remaining inventory and to ensure that the agency does not face such challenges in the future. These efforts will include moving toward more digitized processing of paper returns by investing in scanning millions of original returns upon receipt to decrease manual time spent on return processing.”

As the report provided interim information only, TIGTA did not make any recommendations.